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Unformatted text preview: The issue here is exploiting economies of scale – production costs lower the more a firm produces. However, the problem with exploiting such economies of scale is getting into the market in the first place – in the sense that there is a high cost of entry into the market (a company must make a certain amount before it is profitable) and some markets are so large that only one company can make a profit. The firm that gets to market first wins and then can exploit monopoly rents – in essence, that firms products become “locked in” as the standard. If two similar firms enter the market, neither one will be able to profit. Strategic trade theory calls upon governments to subsidize industries in order to get them over the high initial cost of entry into the market....
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This note was uploaded on 11/25/2011 for the course POLISCI 1003 taught by Professor Olson during the Fall '11 term at GWU.
- Fall '11