 present in most industries, to an extent, and are generally accepted as reasonable business risks with few implications for the performance of market transactions. For example, expenditures for research, development, and marketing are generally regarded as sunk investments. Moreover, most forms of manufacturing entail sunk costs in the form of capital equipment, whether used for manufacturing automobiles or extracting crude oil. These costs in no way prevent market allocation of the end products. In other words, the method of man- ufacture does not alter the ability of market transactions to allocate a good or service. The telecommunications industry works similarly, although it requires nonrecover- able expenditures in plant and equipment, namely wires and switches. Networks in Telecommunications Commentators and judges often argue that sunk costs prevent competition in telecommunications services and hence cause market failure. 13 In particular, sunk costs are an entry barrier if entrants need to make irreversible investments in capacity whereas incumbents have already incurred these costs. 14 These com- mentators and judges argue that the incumbent need only price goods or services to recover operating expenses and incremental capital expenditures, because it has already overcome the irreversible investment costs of entry. An entrant, in contrast, must anticipate earnings exceeding operating costs, incremental investment, and the irreversible costs of establishing its facilities before deciding to enter. ¹ Richard Posner points out, however, that nonrecurring costs of entry are "irrelevant if there are small firms in the market that can grow to be large firms." Moreover, "there is grave doubt whether there are important nonrecurring costs of entry barriers to entry in the true sense." Posner further notes that the capital required for entry is not a barrier because this cost should be comparable to that of firms already in the market (Posner 1976, p. 92). Potential entrants into an industry have many ways to 