From: pierce@haas.berkeley.edu
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Date: 1999-10-04 23:25:00+00:00
Subject: Definition of Quasi-rent

There are several potential definitions of quasirent in the economics
literature.  I evidently have not used the one I should have in section.
So here is a definitive explanation of quasi-rent.  You can also look in
Besanko on pages 153-154.  Note that this definition does not change how
we should solve the problems.  It is simply a definition.  I apologize for
any sudden panic attacks this causes.

Quasi-rent should be considered as equal to your sunk costs.  This is the
amount another business can hold you up for after your entry.  If I have
to sink 5 million dollars to enter, my quasi-rent will be 5 million
dollars, which I may be held up for after I enter.   Thus in solving
holdup problems, you can consider it two ways.  1.  The potential holdup
amount is equal to the quasirent which equals the sunk cost at that point.
or 2. How much does a firm have to receive to continue to produce AFTER
sinking their sunk costs.

I hope this definition has cleared the haze which I am at least partially
responsible.   Once again, the explanation of how to solve these problems
has always been correct.  The strict definition of quasirents was not.

J. Lamar Pierce
Ph.D Student
Haas School of Business
UC Berkeley