User:ExquisiteMan/Barriers to entry

Barrier to enry strategies examples

The strategies that shown below can be useful to form market entry barriers.

• Cost advantage of incumbents - It is reflected by learning curve effects and economies of scale, and it is one of the most critical barriers to entry strategies.
• Product differentiation of incumbents - The incumbent firms which show advantages in advertising, brands, customer loyalties or product differentiation can enable them to be the first in the market.
• Capital requirements - To enable compete or enter the market, the firms need to invest enormous of financial resources to form a barrier to entry, and for the capital-intensive industries, it would need more the financial capital.
• Customer switching costs - The objective of switching costs is to hinder buyers to change suppliers, and technological innovation usually would increase or decrease the cost.
• distribution channels - In the earlier stage, the firms which enter the market would use intensive distribution strategies in order to restrict the potential entrants to access to distributors.
• Government policy - For example, require licenses or permits to reduce the number of firms in the market.
• Advertising - Firms may fund a large number of advertisements in the existing market to create a barrier entry for potential competitors. It reflected by brand promoting and the increase of customer loyalties.
• Number of competitors - During the period when the number of companies is increasing, the possibility of market entry is higher, On the contrary, the likelihood of market entry is less during the period of a large number of business failures.
• Research and development - The existing firms in the market would use efficient investments in research and development to bar the entrants. It depicts in increase technological economies of scale, and boost the industry development, which makes the entrants lack of funding and resource to entre the market.
• Price - the intensive price competition can hinder the entrants. And it usually reflected in lower the price by the firms.
• Technology and technological change - It usually happens in high technology sectors which can have a heavy impact on economies of scale.
• Market concentration - It has a minor effect on the entrants. But it still has the possibility.
• Seller concentration - It has a strong effect on the entrants under the high concentration environment, and it is uneasy for them to enter the market. And vice versa.
• Divisionalizaition - It would mostly happens in oligopolistic industries. Because it is cheaper for them to establish a new department compared to the entrants.
• Brand name or trademark - The incumbent firms have exclusive right to use the brand name and can be costly for entrants to use those brand names. However, this strategic usually weak.
• Sunk costs - The strategic can increasing the strength of barriers to entry. However, it may also lead to monopoly profits, improper resource allocation and low efficiency.
• Selling expenses - The change in demand function may be endogenous to market entry due to sales efforts.
• Incumbent's expected reaction to market entry - If the incumbent firms expect the entrants would cause a threat to them, plus the companies have powerful influences, they would prevent market entry.
• Possession of strategic raw materials - The ability to access to the strategic raw material would gain advantages for the companies.Such as absolute cost advantage.

The implementation of Market structure

• Monopoly: The implementation of monopoly including the exciting firms can obtain tremendous profits through pure monopoly market because they want to continue to earn excess profits in the short and long term. Once they gain these profits, the other entrants want to enter the market due to the huge profit. As a result, the existing monopolies would obstacle to prevents new corporations from the distributors or economies of scales. It can be achieved by creating large economies of scales, patent,trademark, etc.
• Perfect competition - Due to the perfect competition results in firms are unable to control the prices and produce similar or the same goods, that firms can not form a barrier to entry strategy.
• Monopolistic competition - Because of the enterprises can earn their short-term revenue through innovation and marketing new products to push the price higher than average costs and marginal costs, which can make barriers to entry higher. However, due to the low cost of the information in monopolistic competition, the barrier of entry lower than in oligopoly or monopoly as new entrants come.
• Oligopoly - Due to the size of the existing enterprises and the competitive advantages gained from that size, the barriers to entry in the oligopoly market are high.