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things precluded me from entering that market, however: (1) I’m five-ten; (2) I’m slow; and (3) when shooting under pressure, I have a tendency to miss the backboard. Why is LeBron James paid $20 million a year? Because nobody else can play like him. His unique talents create a barrier to entry for the rest of us. LeBron James is also the beneficiary of what University of Chicago labor economist Sherwin Rosen dubbed the “superstar” phenomenon. Small differences in talent tend to become magnified into huge differentials in pay as a market becomes very large, such as the audience for professional basketball. One need only be slightly better than the competition in order to gain a large (and profitable) share of that market.
    In fact, LeBron’s salary is chump change compared to what talk-show host Rush Limbaugh is now paid. He recently signed an eight-year $400 million contract with Clear Channel Communications, the company that syndicates his radio program around the country. Is Rush that much better than other political windbags willing to offer their opinions? He doesn’t have to be. He need only be a tiny bit more interesting than the next best radio option at that time of day in order to attract a huge audience—20 million listeners daily. Nobody tunes into their second-favorite radio station, so it’s winner-take-all when it comes to listeners and the advertisers willing to pay big bucks to reach them.
    Many markets have barriers that prevent new firms from entering, no matter how profitable making widgets may be. Sometimes there are physical or natural barriers. Truffles cost $500 a pound because they cannot be cultivated; they grow only in the wild and must be dug up by truffle-hunting pigs or dogs. Sometimes there are legal barriers to entry. Don’t try to sell sildenafil citrate on a street corner or you may end up in jail. This is not a drug that you snort or shoot up, nor is it illegal. It happens to be Viagra, and Pfizer holds the patent, which is a legal monopoly granted by the U.S. government. Economists may quibble over how long a patent should last or what kinds of innovations should be patentable, but most would agree that the entry barrier created by a patent is an important incentive for firms to make the kinds of investments that lead to new products. The political process creates entry barriers for dubious reasons, too. When the U.S. auto industry was facing intense competition from Japanese automakers in the 1980s, the American car companies had two basic options: (1) They could create better, cheaper, more fuel-efficient cars that consumers might want to buy; or (2) they could invest heavily in lobbyists who would persuade Congress to enact tariffs and quotas that would keep Japanese cars out of the market.
    Some entry barriers are more subtle. The airline industry is far less competitive than it appears to be. You and some college friends could start a new airline relatively easily; the problem is that you wouldn’t be able to land your planes anywhere. There are a limited number of gate spaces available at most airports, and they tend to be controlled by the big guys. At Chicago’s O’Hare Airport, one of the world’s biggest and busiest airports, American and United control some 80 percent of all the gates. 6 Or consider a different kind of entry barrier that has become highly relevant in the Internet age: network effects. The basic idea of a network effect is that the value of some goods rises with the number of other people using them. I don’t think Microsoft Word is particularly impressive software, but I own it anyway because I spend my days e-mailing documents to people who do like Word (or at least they use it). It would be very difficult to introduce a rival word-processing package—no matter how good the features or how low the price—as long as most of the world is using Word.
    Meanwhile, firms are not just choosing what goods or services to produce but also how to produce