Question

Explain how barriers to entry created by high-tech firms differ from barriers to entry created by traditional manufacturing industries such as steel and automobiles.

Answer 1

SOLUTION

BARRIERS TO ENTRY OF HIGH-TECH FIRMS AND TRADITIONAL MANUFACTURING INDUSTRIES

a) BARRIERS TO ENTRY OF HIGH TECH FIRMS

In theories of competition, a barrier to entry created by high-tech firms is generally, a fixed cost that must be incurred by a new entrant, regardless of production or sales activities, into a market that incumbents do not have or have not had to incur. Because barriers to entry prevent incumbent high tech firms and restrict competition in the market, they can contribute to the distortionary prices and therefore most important when discussing anti-trust policy. Barriers of entry often aid or cause aid the existence of monopolies or give companies market power. Barriers to entry are a fundamental part of strategic business analysis: the obstacles that block the company's efforts to enter into the new market, such as investment requirements, regulations patennts and that tend to define that market's competitiveness. Some businesses are easier than others to get into. The barriers to entry can dictate how easy it to penetrate into a specific commercial sector. Some have correctly argued that the barriers to entry for many tech- centric businesses are low. This argument is particularly true for the internet where rivals can put up a competing web site or deploy a rival app seemingly overnight. But it is absolutely critical to understand that the market entry is not as same as building a sustainable business and does'nt showing up guarentee survival.

b) BARRIERS TO ENTRY CREATED BY TRADITIONAL MANIFACTURING SUCH AS AUTOMOBILES

Whereas, barriers to entry created by traditional marketing is extremely capital and energy-extensive. Due to these limitations, major auto manufacturers produce very similar, if not virtually identical, vehicles at very large volumes. This limits potential customization for different users and acts as a barriers to entry for new companies or production techniques. Better understanding of the barriers for low volume production and possible solutions with innovative production techiques is crucial for making low volume vehicles viable and accelarating the adoption of new production techniques and light weight materials into the competitive market place. Additive manufacturing can enable innovative designs with minimal capital investment in tooling and hence should be ideal for low and perhaps high volume parts.