Model of SYLOS-LABINI:

Sylos-Labini developed a model of limit pricing based on scale-barriers to entry. He concentrated on the case  of oligopoly whose technology is characterised by technical discontinuities and economies of scale. 

Assumptions

1) The market demand is given and has unitary elasticity

2) The product is homogeneous

3) The technology consists of three types of plant size: small, medium and large. Thus, we would have three cost lines corresponding to each plant size.

4) The price is set by a leader who is the largest firm operating at the lowest cost. The cost level is low enough to prevent entry. The leader does not act at free will and sets a price acceptable to all firms in the industry which also prevents entry

5) A normal rate of profit exists in each industry

6) The leader knows the cost structure of all plant sizes and the market demand

7) The entrant comes into the industry with the smallest plant size

8) The existing firms expect that the potential entrant would not enter if post-entry p rice falls below LAC

9) The entrant expects that the established firms will continue to produce the same level of output post-entry.