| Sumario: | Product differentiation, which is used to confront firms with negatively sloped demand curves, and free entry basically are inconsistent assumptions. The most plausible source of product differentiation is to be found in the laws of trademark, copyright, and patent. The laws clearly are barriers to imitative entry, they may be socially justified by the incentive that they give to new product production or by the reduction in information cost that they help to bring about, benefits which should, of course, be taken account of in judging the overall efficiency of markets in which products are differentiated. Nonetheless, these barriers provide neither more nor less than the prerequisites for simple monopoly. In the presence of such barriers it is difficult to apply or interpret the assumption of free entry. If a firm produces a profitable brand, "entry" need not eliminate profits because there is not free entry into the production of that brand. Product differentiation undermines the logic of using "free entry" to deduce the familiar zero profit Chamberlin equilibrium.
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