Entry into Competitive Industries as Affected by Risk Aversion

Most textbooks discuss the problem of entry into competitive industries for a deterministic environment. It is argued that the opportunity of earning an economic profit leads to the expansion of existing firms as well as to the entry of new firms. This process continues until entry no longer produces abnormal profits. Whenever losses exist, the forces work in the opposite direction, and some firms leave the industry. Thus, in the long run economic profits are zero.