Why is absolute cost advantage a barrier of entry?

Absolute cost advantage relates to the demand curve being outside the LRAC (entrant) curve (See picture) Reasons why a firm might have absolute cost advantage: • Experience in the market / experience with production (Learning by doing - cumulative effect) • Unique, rare, value-generating and not replicable resources (For instance path dependency in reaching lower costs or higher wages) • Availability of patents (For instance medicine) • Exclusivity on key input (For instance SAS has better gate access in Copenhagen airport) • Vertical production linkages / Vertical advantages / knowledge (For instance breweries can share knowledge on advertising, marketing, logistics etc. if they are in the same group) • Capital /financing conditions (It is often more expensive for new firms to borrow capital as they are higher credit risk. If it is not possible to borrow, then there are capital market entry barriers) Capital market entry barriers are especially evident for entrepreneurs/start-ups. However, there is also an opposite view to the above that argues the absolute cost advantage is not a bad thing for the market and overall economic welfare: • The existence of the current cost advantages do not necessarily represent the permanent benefits (remember Chicago school argument) • Could be very expensive to acquire absolute cost advantages. Especially if the technological development is fast • Existing companies may pave the way for the new companies, taking the commercial risks and costs, developing technologies etc. • Not always optimal to be "first-mover '->' coming in second strategy may be optimal?