Question

300 words minimum - What, exactly, is a ‘barrier to entry” (also known as a barrier to entry and success? 2. How and why is it that firms in an “oligopoly” market structure often enjoy higher barriers to entry compared to firms that are perfect competitors? 3. In your opinion, what may be the three most powerful barriers to entry? Why? Please give an example of each of these three barriers to entry. 4. In your opinion, which three barriers may be the least powerful? Why? Please give an example of these three barriers to entry. 5. Please give three examples of how “consumer loyalty” may be used as a barrier to entry and success, and please try to use examples not previously discussed, if possible. 6. Please give three examples of how our legal system may be used as a barrier to entry and success, and please try to use examples not previously discussed, if possible. 7. What, exactly, is the definition of the term “price discrimination”? 8. What must a seller DO in order to engage in price discrimination? 9. Please give me two examples of price discrimination that were not previously discussed, preferably two examples that you have experienced first-hand. 10. In your examples, how did the seller “get away with it”? 2424

Answer 1

1. Barriers to entry is the economic jargon describing the existence of high start-up cost, or other related obstacles that prevent new competitors from easily entering an industry or an area of business. Therefore, barriers to entry benefit existing firms because as their revenues and profits are protected.

2. In an Oligopoly, we must understand that the market is concentrated with fewer firms which largely influence the prices and have a great market power at their disposal. The barriers of entry protected these firms' profits. As barriers to entry protect incumbent firms and restricts competition in a market, they contribute to distortionary prices which firms in oligopoly desire of: market power.

3. In my opinion, the three major barriers to entry are:

• Economies of scale. Example: Oil Industry. If a firm wants to enter oil industry, it needs to lay its own pipelines whose costs increase as the firm increases production thus reducing the economies of scale.
• Patents. Ex: Automobile industry in the US. The existing firms in Oligopoly have patents for various technologies existing in the auto industry, thus saving few room for innovative tech.
• Access to expensive and sophisticated technology. Ex: Defence. With the advent of increasing technology in every field, defence industry is not an exception. If a private firm wants to enter the market to manufacture ammunition, they certainly need to be able to have these sophisticated technology at their disposal, else there is no use in entering the market. The existing firms enjoy the benefits of having sophistication with them.

4. In my opinion there is no barrier to entry which is least important. If a firm considers itself to do business and make profits, they need to analyze every barrier to entry and make arrangements accordingly.

5. Developing consumer loyalty through establishing a strong brand image deters entry or acts as a barrier to entry. With a very strong brand image of an existing firm in an oligopoly , the new firm would have to spend a lot of money on advertising, which is a sunk cost or kn simple words a deterrent to entry. Some brands may be so strong, that no amount of advertising might be able to dislodge the incumbent firm. For example, Coca cola, Jio (Telecom company with 390 Million subscribers in India)

6. Excess taxation, regulations and legal patents in a industry could contribute to our legal system itself posing as a barrier of entry. Smaller firms who wish to enter the market might not be in the best position to pay off heavy taxes. As far as the regulations are concerned, in a country with a poor ranking in Ease of doing business, the paper work needed to register the firm in a market itself is a time taking process. Hence these act as a potential barrier of entry for small firms especially.

7. Price discrimination is a selling strategy that charges customers different prices for the same product or service based on what the seller thinks the maximum a customer can pay.

8. Simple. The seller needs to assert exactly what a customer from a particular background can pay for the good or service. Large corporations have analytics teams who study such data on how much a customer can pay given the socio-economic conditions prevailing in a country. Seller gets the maximum profit by practicing this.

9. My first example would be airplane fares. Price discrimination takes place in airplanes as they charge different prices in different seasons and days of the week. Generally in week days, prices are nominal.

Second example would be price discrimination on the basis of quantity purchased, i.e., electricity. The tariffs set by the government is not uniform as you know. Maybe consumption of first x units of current has one price per unit and consumption after x units has a different price per unit.

10. The sellers in each case have gauged the urgency and taken leverage of the situation the consumer is in. In case of airplane fares, the firm knows exactly that most of the passengers prefer night travel and hence charge a whopping amount for the same than in a mid day flight. In the second example, it's the government who sets these rules, and they've done this to encourage people to save electricity by giving the incentive of saving money (as the price per unit after x is always higher than it was before). The government in this case has used the price discrimination to their advantage and got away with it.

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