Advantages And Disadvantages Of Barriers To Entry
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Conditions of Entry: The entry of a new firm in an industry or a market mainly depends on the ease with which it can enter a given industry or market. In case there is free entry the number of sellers will be large and if there is restricted entry the number of sellers will be small. In the long run the level of competition depends on the condition of entry. A new entrant could bring with it the following advantages.
• Offer new goods and services,
• Alter the balance between different sectors,
• Approach with new technological and managerial techniques,
• Augment opportunities.
1.10.1Factors determining conditions of entry
The following are some of the key factors that decide the structure of any market. This list is not intended to be comprehensive, but
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3. Threat of new entrants High barriers to entry in the industry. Licensing requirements are high. There is a minimum size requirement to achieve profitability and the initial investment is required and fixed costs of operating. How much of the control is in the hands of existing players of the market or key resources?
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Porter states that whenever a new entrant enters an industry, they put pressure on prices, costs, and the rate of investment necessary to compete for companies already within that industry. This in turn “puts a cap on the profit potential of an industry.” (Porter, 2008) Porter also points out that there are seven barriers which new entrants much look at. The first barrier is the supply side economies of scale. “Supply-side scale economies deter entry by forcing the aspiring entrant either to come into the industry on a large scale, which requires dislodging entrenched competitors, or to accept a cost disadvantage.”
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The temporary character of competitiveness, which can be lowered anytime. 4. The massive spending on technological advances. 5. The brand image misconception in which low prices are usually associated with low quality product.
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In spite of that, barriers to entry in an oligopoly market are high. The prime barriers are economies of scale, access to costly and sophisticated technology, patents and tactical measures by existing dominating firms devised to hinder new firms from entering the market. In addition, other sources of barriers include government regulation favoring incumbent firms making it difficult for nascent firms to
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THE THREAT OF NEW ENTRANTS :- I believe that fruit juice industry, the threat of new entrants in the following areas :- Economics of Scale :- In general the economics of scale barriers the entry form or new entrants brined the risk of existing enterprises a strong counter-attack in order to enter the large scale of production. Fruit Juice industry, production lines, excellent processing technology which higher productivity, lower production costs. Industry Counter-Existing Enterprises :- Juice huge market potential, attracting an increasing number of new entrants the market leader in the use of existing resources to counter the strengths, such as control of raw material, increasing the cost of new entrants control terminal sales of the competitors blockade, increasing the cost of sales and other rivals to form barriers to entry. 3.
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• Building capacities and spending money on research and development. New entrants are less likely to enter a dynamic industry where the established players such as Twitter, Inc. keep defining the standards regularly. It significantly reduces the window of extraordinary profits for the new firms thus discourage new players in the industry. Bargaining Power of
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Porter’s five forces model To analyse the microenvironment facing United Biscuits in China, Porter’s five forces model is selected to provide an understanding of the competitive forces, to determine the competitive position of the company and profitability within the biscuit industry whilst offering a framework for predicting and influencing competition over time (Porter, 2008, p.80). The findings are explained below: Threat of new entrants • The high capital cost required for investing in developing distribution, sales network and acquiring production equipment could deter new entrants. The barriers are high when capital is necessary for unrecoverable expenditures such as marketing and product development capability which is difficult for new entrants to succeed in the short-term (Euromonitor, 2014; Porter, 2008, p.81).
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The rivalry among existing competitors The extent of rivalry between ports is the first force shaping
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3.2 Industry conditions (Porter 's Five Forces Analysis) Five forces which would impact an organization 's behavior in the market. Understanding the nature of these forces provides organizations the required insights to enable them to formulate the appropriate strategies to be successful in their market (Thurlby, 1998). 3.2.1 Threat of new entrants (high entry barriers) High capital investment for competitor entry into telecommunication industry. Companies in this industry maintain development, spend fairly large amount of capital on network equipment and incurred high fixed costs. Besides, technologies are also considered as barriers for new companies to enter the market.
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When capital markets are enables to offer funds, increase the risk of competitive entrants. The industry will becomes a magnet to new if a firm have a very high profit. Unless got way we can solve this problem if not the competition and competitor will increase. Firms in an industry try to keep the new entrants low by barriers to entry, first is economies of scale. An economy of scale is when an industry is characterized by large economies of scale for new firms to enter and participate, if they are willing to accept a cost disadvantage.
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And that exit barriers are high in production, but low distribution Barriers to
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