 |
| Competition law |
|---|
| Basic concepts |
| Anti-competitive practices |
| Laws and doctrines |
Europe
Australia |
| Enforcement authorities and organizations |
| edit box |
In economics and especially in the theory of competition, barriers to entry are obstacles in the path of a firm which wants to enter a given market. The Trade Practices Act 1974 is an act of the Parliament of Australia. The International Competition Network is an informal virtual network that seeks to facilitate cooperation between Competition law authorities globally A competition regulator is a Government agency, typically a statutory authority, sometimes called an economic regulator, which regulates and enforces Economics is the social science that studies the production distribution, and consumption of goods and services. Competition is a rivalry between individuals groups nations or animals for territory or resources Generally a company is a form of Business organization. The precise definition varies Sao Paulo Stock Exchangejpg|thumb| Virtual market arena where buyer and seller are not present and trade via intemediates and electronical information
The term refers to hindrances that an individual may face while trying to gain entrance into a profession or trade. The term profession is applied to those persons who have specialized and technical skill or knowledge which they apply for a fee to certain tasks that ordinary and unqualified people cannot Trade is the willing exchange of goods, services, or both Trade is also called Commerce. It also, more commonly, refers to hindrances that a firm may face (or even a country) while trying to enter a market, industry or trade grouping. In Political geography and International politics, a country is a Political division of a geographical entity Sao Paulo Stock Exchangejpg|thumb| Virtual market arena where buyer and seller are not present and trade via intemediates and electronical information For other uses of this term see Industry (disambiguation An industry (from Latin industrius, "diligent industrious" Barriers to entry restrict how competitive a market is. Competition in economics is a term that encompasses the notion of individuals and firms striving for a greater share of a market to sell or buy goods and services
Contents |
Barriers to entry for firms into a market
Barriers to entry into markets for firms include;
- Investment - That is especially in industries with economies of scale and/or natural monopolies. Investment or investing is a term with several closely-related meanings in Business management, Finance and Economics, related to saving Natural monopoly is a term used in Economics to refer to two different things
- Government regulations - It may make entry more difficult or impossible. This article is for the legal term For regulation of genes see Regulation of gene expression. In the extreme case, a government may make competition illegal and establish a statutory monopoly. A legal monopoly, statutory monopoly, or de jure monopoly is a Monopoly that is protected by law from competition Requirements for licenses and permits, for example, may raise the investment needed to enter a market.
- Predatory pricing - The practice of a dominant firm selling at a loss to make competition more difficult for new firms who cannot suffer such losses, as a large dominant firm with large lines of credit or cash reserves can. Predatory pricing (also known as destroyer pricing) is the practice of a firm selling a product at very low price with the intent of driving competitors out of the Market It is illegal in most places; however, it is difficult to prove. See antitrust.
- Intellectual property - Potential entrant requires access to equally efficient production technology as the combatant monopolist, in order to freely enter a market. Intellectual property ( IP) is a legal field that refers to creations of the mind such as musical literary and artistic works inventions and symbols names Patents give a firm the sole legal right to produce a product for a given period of time, and so restrict entry into a market. A patent is a set of Exclusive rights granted by a State to an inventor or his assignee for a fixed period of time in exchange for a disclosure of an In Economics, a monopoly (from Greek monos, alone or single + polein, to sell exists when a specific individual or enterprise has sufficient Patents are intended to encourage invention and technological progress by offering this financial incentive. An invention is a new form composition of matter device or Process. Technology is a broad concept that deals with a Species ' usage and knowledge of Tools and Crafts and how it affects a species' ability to control and adapt Similarly, trademarks and servicemarks may represent a kind entry barrier for a particular product or service if the market is dominated by one or a few well-known names. A trademark or trade mark, represented by the symbols ™ and ®, or mark is a distinctive sign or indicator used by an individual In some countries notably the United States, a Trademark used to identify a service rather than a product is called a service mark or servicemark
- Economy of scale - Large, experienced firms can generally produce goods at lower costs than small, inexperienced firms. Cost advantages can sometimes be quickly reversed by advances in technology. For example, the development of personal computers has allowed small companies to make use of database and communications technology which was once extremely expensive and only available to large corporations. A personal computer ( PC) is any Computer whose original sales price size and capabilities make it useful for individuals and which is intended to be operated A Computer Database is a structured collection of records or data that is stored in a computer system Communication is the process of conveying information from a sender to a receiver with the use of a medium in which the communicated information is understood the same way
- Globalisation - Entry of global players into local market make entry of local players into the market difficult
- Customer loyalty - Large incumbent firms may have existing customers loyal to established products. Globalization (or globalisation) in its literal sense is the process of transformation of local or regional phenomena into global ones The loyalty business model is a Business model used in Strategic management in which company resources are employed so as to increase the loyalty of customers and The presence of established strong Brands within a market can be a barrier to entry in this case.
- Advertising - Incumbent firms can seek to make it difficult for new competitors by spending heavily on advertising that new firms would find more difficult to afford. Advertising is a form of Communication that typically attempts to persuade potential Customers to Purchase or to consume more of a particular Brand
- Research and development - some products, such as microprocessors, require a massive upfront investment in technology which will deter potential entrants. The phrase research and development (also R and D or more often R&D) according to the Organization for Economic Co-operation and Development, refers A microprocessor incorporates most or all of the functions of a Central processing unit (CPU on a single Integrated
- Sunk costs - Sunk costs cannot be recovered if a firm decides to leave a market; they therefore increase the risk and deter entry. In Economics and business decision-making sunk costs are Costs which cannot be recovered once they have been incurred Risk is a Concept that denotes the precise probability of specific eventualities
- Network effect - When a good or service has a value that depends on the number of existing customers, then competing players may have difficulties to enter a market where a strong player has already captured a significant user base. In Economics and Business, a network effect (also called network externality) is the effect that one user of a good or service has
- Restrictive practices, such as air transport agreements that make it difficult for new airlines to obtain landing slots at some airports. An airport is a location where Aircraft such as airplanes, Helicopters and blimps take off and land
- Distributor agreements - Exclusive agreements with key distributors or retailers can make it difficult for other manufacturers to enter the industry.
- Supplier agreements - Exclusive agreements with key links in the supply chain can make it difficult for other manufacturers to enter the industry.
- Inelastic demand, a strategy of selling at a lower price in order to penetrate markets is ineffective with price-insensitive consumers.
- Vertical integration - A firm's coverage of more than one level of production, while pursuing practices which favor its own operations at each level, is often cited as an entry barrier
- Cost advantages independent of scale - Proprietary technology, know-how, favorable access to raw materials, favorable geographic locations, learning curve cost advantages.
Barriers to entry for individuals into the job market
Examples of barriers restricting individuals from entering a job market include educational, licensing, or quota limits on the number of people who can enter a certain profession such as that of lawyer, and educational, licensing, and experiential requirements for people who wish to be neurosurgeons. Education encompasses both the Teaching and Learning of Knowledge, proper conduct, and technical competency The verb license or grant license means to give permission The noun license is the document demonstrating that permission A quota share is a specified number or percentage of the allotment as a whole ( Quota) that is prescribed to each individual entity (see Non-tariff barriers to trade A lawyer, according to Black's Law Dictionary, is "a person learned in the law as an attorney, Counsel or Solicitor; a person The verb license or grant license means to give permission The noun license is the document demonstrating that permission Neurosurgery is the surgical discipline focused on treating those central, Peripheral nervous system and spinal column diseases amenable to surgical
Whilst both types of barriers to entry attempt to guarantee that people entering those fields are suitably qualified, the barriers to entry also reduce competition. This has the effect of facilitating premium pricing for the services of regulated professions. That is, if just anyone could enter these fields, the income of the incumbents would be expected to be lower.
Classification and examples
Michael Porter classifies the markets into four general cases:
High barrier to entry and high exit barrier - Examples: Telecommunications, Energy
High barrier to entry and low exit barrier - Examples: Consulting, Education
Low Barrier to entry and high exit barrier - Examples: Hotels, Siderurgy
Low barrier to entry and low exit barrier - Examples: Retail, E-commerce
Those markets with high entry barriers have few players and thus high profit margins. Michael Eugene Porter (born 1947) is a University Professor at Harvard Business School, with academic interests in Management and Economics In Physics and other Sciences energy (from the Greek grc ἐνέργεια - Energeia, "activity operation" from grc ἐνεργός Education encompasses both the Teaching and Learning of Knowledge, proper conduct, and technical competency A hotel is an establishment that provides paid lodging usually on a short-term basis Electronic commerce, commonly known as e-commerce' or eCommerce, consists of the buying and selling of products or services over electronic Those markets with low entry barriers have lots of players and thus low profit margins. Those markets with high exit barriers are unstable and not self-regulated, so the profit margins fluctuate very much along time. Those markets with a low exit barrier are stable and self-regulated, so the profit margins do not much fluctuate along time.
The higher the barriers to entry and exit the more prone a market tend to be a natural monopoly. In Economics, a monopoly (from Greek monos, alone or single + polein, to sell exists when a specific individual or enterprise has sufficient The reverse is also true. The lower the barriers the more likely to become a perfect competition. In Neoclassical economics and Microeconomics, perfect competition describes a market in which no buyer or seller has Market power.
See also
- Anti-competitive practices
- Exclusive dealing
- Market power
- Switching barriers (a/k/a switching costs)
- Barriers to exit
- Zero-profit condition
Dapyx Software network: MP3 Explorer | Ebook Manager | Zenithic