| What Advantages may New Firms have when entering a Market? | -Not every New Firm wants to Challenge the Giants
-New Firms can become Large that Diversify into New Markets. Larger Size leads to more Financial Resources |
| What is a Barrier to Entry? | -Anything that poses a Challenge to a Firm if it wishes to Enter the Market |
| How can the Difficultly, or ‘height’ of the Barrier to Entry depend on? | -How long it takes, or how Expensive it is to Enter the Market and Increase Competition
-If new Firms can even Enter at all |
| How can Barriers to Entry Difficultly affect how long Firms already in the Industry can make a Supernormal Profit? | -How ‘high’ the Barriers to Entry is - how long it takes for Firms to Enter the market
-Level of Supernormal Profit being made - More Profits = more effort the New Firms need to do to overcome Barriers |
| What happens in
1. PC Markets
2. Pure Monopoly (PM) Markets
3. Regular Real Life Markets
With Barriers to Entry? | 1. PC Markets have NO barriers at all to Enter or Leave
2. PM Markets have Impossible Barriers to Entry - only 1 Firms remains the Industry
3. Usually, there remains some Barriers to Entry, but they aren’t Impossible to overcome |
| How can Barriers to Entry be caused by Firms already in the Industry? (Incumbent Firms) | -Innovative Product or Service gives the Incumbent Firm a Boost over Rivals, making it Hard to overcome. If it’s Patented (Legally Protected) then its Game Over
-Branding means Consumers will prioritise the Product over others, hampering New Firms
-Strong Brand because the Firm just makes the Best Products or Advertising. Becomes Expensive and Time Consuming for New Firms to challenge the World Leading Firm
-Aggressive Pricing Strategies can force new Firms out. Incumbent Firms can lower Prices that New Firms can’t match due to Economies of Scale (Predatory Pricing)
-Threat of a Price War can be the disincentive required for no new Firms to enter |
| How can Barriers to Entry happen from the Industry’s Nature? | -Captain Intensive Industries need High Capital Expenditure such as Aeroplane Production. The Cost of breaking into the Market may be too Much
-If Investments are unable to be Recovered when Firms leave the Market then it seems too Risky (Barriers to Exit is a Barrier to Entry)
-If the Minimum Efficient Scale of Production exists then New Firms coming in, on a Smaller Scale, will be Selling at a Higher Point on the AC Curve. This leads to a Higher Price (Economies of Scale) |
| How can Barriers to Entry occur from Government Regulation? | -If Licensing is Needed from the Government, then the Number and Speed to Enter the Market is Reduced (Pubs, Food, Banking via Regulator)
-New Factories need a Planning Permission
-Regulations on Health and Safety and Working Conditions that Firms need to keep up with - Costs go up |
| What Advantages may New Firms have when entering a Market? | -Not every New Firm wants to Challenge the Giants
-New Firms can become Large that Diversify into New Markets. Larger Size leads to more Financial Resources |
