When Is Entry "Easy"?
By Bryan Caplan
Is it “easy” to enter the market for tomatoes? In a sense, yes: Just plant some tomato seeds, pick the ones that grow, and you’re “in the market.” But in another sense, no: You’d have to grow a lot of tomatoes to earn enough money to make it worth your while. Ever know a home gardener who calculated that, counting the cost of labor, his tomatoes cost $50 a piece?
This point occured to me when I was thinking about comments on my earlier post on framing stores. A number of readers argued that there are lots of framing stores because of the “ease of entry.” But doesn’t this conflates physical and economic ease? Yes, it’s physically easy to set up a framing store. But that hardly implies that it is economically easy to set up a profitable framing store. Think tomatoes.
Admittedly, legal restrictions on entry make entry both physically and economically more difficult. But it’s perfectly possible for unregulated entry to be physically easy and economically difficult. In fact, in retail businesses where consumers make infrequent, large-value purchases – like t.v.s or picture frames – that’s precisely what we should expect.
So why are there so many framing stores? I still don’t know.