0 evaluări0% au considerat acest document util (0 voturi)
92 vizualizări12 pagini
Barriers to entry are designed to block potential entrants from entering a market profitably. They seek to protect the monopoly power of existing firms and maintain supernormal profits in the long run.
Barriers to entry are designed to block potential entrants from entering a market profitably. They seek to protect the monopoly power of existing firms and maintain supernormal profits in the long run.
Drepturi de autor:
Attribution Non-Commercial (BY-NC)
Formate disponibile
Descărcați ca PDF, TXT sau citiți online pe Scribd
Barriers to entry are designed to block potential entrants from entering a market profitably. They seek to protect the monopoly power of existing firms and maintain supernormal profits in the long run.
Drepturi de autor:
Attribution Non-Commercial (BY-NC)
Formate disponibile
Descărcați ca PDF, TXT sau citiți online pe Scribd
• Barriers to entry are designed to block potential entrants from entering a market profitably • They seek to protect the monopoly power of existing firms and therefore maintain supernormal profits in the long run • Barriers to entry make a market less contestable – i.e. they affect market structure in the long run Types of Entry Barrier (1) • (1) Structural barriers (or Innocent Barriers) – due to differences in production costs and being in the market for some time – Economies of scale (e.g. Natural monopoly) – Vertical integration (e.g. Backwards and forwards) – Control of essential resources e.g. technologies / commodities – Expertise and reputation of the incumbent – Brand loyalty – Inherent suspicion among consumers about new ideas • (2) Strategic barriers – Predatory pricing / limit pricing – Marketing / product differentiation Types of Entry Barrier (2) • (3) Statutory (legal) barriers - entry barriers given force of law – Licences (e.g. Professional qualifications) – Patents – Copyrights – Public franchises – Tariffs, quotas and other trade restrictions Protecting Monopoly Power through Patents • Patents – Government enforced property rights – Generally valid for 12-20 years – they give the owner an exclusive right to prevent others from using patented products, inventions, or processes – A patent should protect your ‘intellectual property’. – Patent licences can be sold to other producers – Designed to encourage innovation and invention Integration and Pricing Tactics • Vertical Integration – Control over supply chain and distribution • Limit Pricing and Predatory Pricing – Predatory pricing involves lowering prices to a level that would force new entrants to operate at a loss (price < average cost) – Sacrificing some short term profits but to restore and maintain supernormal profits in the long run Cost Advantages and Marketing/Branding • Absolute cost advantages AC – Lower costs (e.g. economies of scale) - allows the existing monopolist to cut prices and win SAC1 price wars • Advertising and Marketing – Developing consumer loyalty by establishing branded products SAC2 can make successful entry into the market by new firms more SAC3 expensive • Brand Proliferation – Brand proliferation disguises from LRAC consumers the actual concentration in markets such as detergents, confectionery and household goods. Output Barriers to Exit • Barriers to exit increase the intensity of competition in a market because existing firms “stay and fight” • There are costs associated with exiting an industry • (1) Asset-write-offs – E.G. plant and machinery, stocks and “goodwill” • (2) Closure costs – Redundancy costs, contract contingencies with suppliers – Penalty costs from ending leasing arrangements for property • (3) Lost reputation – Lost goodwill, damage to the brand • Sunk costs are costs incurred when entering a market that are irrecoverable should a firm decide to leave the market Reducing entry barriers • Technological change in markets – E.g. impact of e-commerce in many markets – Impact of disruptive technologies • Removal of statutory entry barriers – e.g. the liberalisation of markets – Utilities • Postal services • Electricity • Gas – Banking / Finance • Globalisation of markets – Emergence of foreign competition Cereal Barriers • What are the entry barriers for new businesses and products in the breakfast cereal market? • How does a firm like Kellogg’s protect its market position in the long term? • Give some examples of product innovation in the cereal market in recent years Keep up-to-date with economics, resources, quizzes and worksheets for your economics course.