Please enable JavaScript.
Coggle requires JavaScript to display documents.
Installment 6: ENTRY & EXIT - Coggle Diagram
Installment 6: ENTRY & EXIT
Concepts
New firm
New Company in the Market
Firms diversify into new market
Exit
Product withdrawal
Firm out of business
Specific product or from specific market
Barriers / hurdles
Allow to earn positive profits
Prevents from "hit & run" entry
Can cause oligopolies
Raise sunk entry costs or reduce post-entry profit
To Exit
Obstacles or impediments from exiting a market
Contestable Markets
Firms can enter & leave freely with low sunk costs
"hit & run" competition
Incumbents
Firm with influence & significant market share
Bain´s Typology of Entry Conditions
Bloackaded Entry :forbidden:
High structural barriers
Incumbents do not have to do anything to deter entry
Large fixed Investments
Undifferentiated product
Accommodated Entry :unlock:
Entry CANNOT be deterred
Structural barriers are low
Strategic barriers are ineffectice or inefficient
Do not waste time & resources trying to prevent entry
Deterred Entry :warning:
Improves incumbent´s profit
Raise entry cost or reduce post entry profit
In markets with growing demand or fast progress
Approach to potential entry based on Market conditions
Asymmetry Requirement
Differences between incumbents & entrants
Financial resources
Production capabilities
Potential asymmetries
Sunk entry costs
Large investment
Relationships with customer
Loyalty programms
Path-dependences
Structural Barriers
Natural defenses
Control whole market by controlling one key thing
Types
Control of essential resources
Access to vertical chain
Economies of Scale & Scope
Cost advantage & learning curve effect
Marketing advantages
Umbrella effect
from Market Structure
Strategic Barriers
Worthwhile if
Incumbent higher profit as monopolist than as a duopolist
Change entrant´s expectation of post-entry competition
Limit Pricing
Price so low
Incumbent
earns more than under Cournot duopoly
Add a Strategy of no qty reduction
Entrance cannot cover entry cost
Predatory Pricing
Force exit & prevent entry
Set low prices - even below cost
Chain store paradox
Predation & capacity expansion
Reputation discourage entry in the future
Strategic Bundeling
Efficiency reasons
Labor or scale economies
Two goods sold at a lower price than it would cost to buy separately
Plane tickets + Accomodation
Transfer the monopoly power from one to another market
Firm´s behaviour & strategies to entry