Changes

Shaked and Sutton (1982) provide an explanation for an observation of a duopolist, in conjunction with both positive profits and zero entry costs. In their model there is price competition, but they provide grounds for an objection to the investigation. In this model the consumers taste for product variation allows two different quality entrants to enter the market, compete on prices, and earn positive profits. The entry of a third firm (if the parameters are as described in their model) would reduce profits to zero for all firms, and reduce welfare - as customers would then only have one choice of product when they have a taste for variety. Thus the grounds would have to that the firms are producing different qualities, and that the higher quality firm is making the greater profit - this would be entire consistent with the model. For different parameters more than two firms could be in the market even and even with a free entry condition could be earning positive profits - in this case the profits should still be quality ordered. Profits here do not indicate anticompetitive behaviour or barriers to entry - they indicate vertical differentiation. In fact zero profits would indicate too much competition, and too little provision of variety.

'''References'''

#'''[[Salop (1979) - Monopolistic Competition With Outside Goods |Salop (1979)]]''', "Monopolistic competition with outside goods", Bell Journal of Economics 10, 141-156. [http://www.edegan.com/pdfs/Salop%20(1979)%20-%20Monopolistic%20competition%20with%20outside%20goods.pdf pdf]

#'''[[Shaked Sutton (1982) - Relaxing Price Competition Through Product Differentiation |Shaked, A. and J. Sutton (1982)]]''', "Relaxing price competition through product differentiation", Review of Economic Studies 49, 3-13. [http://www.edegan.com/pdfs/Shaked%20Sutton%20(1982)%20-%20Relaxing%20price%20competition%20through%20product%20differentiation.pdf pdf]

===Answer D: Soft Drink Organization (Spiller)===