Incumbent firm

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Updated: Aug 20, 2021

A firm which is already operating in a market. In a contestable market, where the goods produced by different firms are homogeneous and there are no sunk costs, there is complete symmetry between an incumbent firm and would-be entrants. If goods can vary in quality, so that reputation matters, and if there are any sunk costs, the incumbent is in a stronger competitive position than potential entrants: the incumbent has established market contacts, and has already incurred the sunk costs. An incumbent will have a further competitive advantage if cost savings come from learning by doing; an existing firm has a start on any new entrant in the experience from which cost reductions are derived.

Reference: Oxford Press Dictonary of Economics, 5th edt.



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James Knight
Editor of Education
James is the Editor of Education for Invezz, where he covers topics from across the financial world, from the stock market, to cryptocurrency, to macroeconomic markets.... read more.