Pat asks if I meant by fixed costs expenses, such as laying track or investing in 
research.  The answer is yes.

He suggests that entrepreneurs should factor in fixed costs before making their 
investment.  The answer here, like most economic answers is yes and no.  Before I 
explain further, recall that competitive pricing should mean that prices would go 
down to near marginal costs once the investment is sunk.  As a result, competition 
and profitability would have trouble coexisting.

In my book, I went to great lengths explaining that this thinking was central to the 
major American economists -- the same ones who founded the American Economic 
Association, including John Bates Clark.  These economists wrote textbooks advocating 
competitive markets, but when they turn to the actual functioning of high fixed cost 
industries, such as the railroads, they advocated limits on competition to prevent 
universal bankruptcy.

So the entrepreneur would do well to avoid industries with such a cost structure.  
Perhaps those who jump in, like the sort of anticipatory powers that Pat would 
attribute to entrepreneurs.

Michael Perelman