X-Inefficiency

Statement

X-inefficiency occurs when a firm lacks the incentive to control costs, so it produces at a cost above the minimum attainable.

Notes

X-inefficiency is a failure of productive efficiency from within the firm rather than from its scale: the firm could in principle produce at lower cost but does not, because competitive pressure to do so is weak. It is most associated with firms insulated by high barriers to entry — a monopolist facing no rivals has little to discipline its costs — and is a standard counter-point to the cost advantages such firms enjoy from economies of scale.