Every time an executive in an established company needs to make an investment decision, there are two alternatives on the menu. The first is the full cost of making something completely new. The second is to leverage what already exists, so that you only need to incur the marginal cost and revenue. Almost always, the marginal-cost argument overwhelms the full-cost. For the entrant, in contrast, there is no marginal-cost item on the menu. If it makes sense, then you do the full-cost alternative. Because they are new to the scene, in fact, the full cost is the marginal cost.
