Question

How does economies of scale effects in an industry serve as a barrier to entry? Discuss both supply-side and demand-side economies of scale. Besides explaining what the barrier means, explain how a potential new entrant specifically is going to be at a disadvantage.

b. For a potential new entrant (i.e., a client who hired you for consulting advice) who faces this barrier, what is one viable option for it to consider should it still want to enter the car rental industry (as we discussed in the lecture), be competitive, and not accept below-normal performance? Give this client a game plan.

Answer 1

How does economies of scale effects in an industry serve as a barrier to entry? Discuss both supply-side and demand-side economies of scale. Besides explaining what the barrier means, explain how a potential new entrant specifically is going to be at a disadvantage.

Economy of scale serves as a barrier by creating the monopoly through controlling resources, legally restricting competition and intimidation of pricing. In return it affects the living standards and so is the supply is directed to only limited industries who works to meet the demand. This has direct effects to new entrants through the Long Run Average Cost (LRAC) where by, a new industry will either not meeting the cost of production on competition through rise in economic standards and rising challenges of production like technological, governmental regulations and pricing hence hard to balance demand, supply and cost of production.

Economies of scale effects in an industry serve as a barrier to entry in that there are two main financial measures that can be used to define the effect of the economies of scale as a barrier to industry entry are the cost of production and the capital flows in economic standards. These are the direct meaningful measures of the impact of the barriers in that the cost of production increases when an industry dominates a market controlling the resources and in return, increasing cost of production for other industries that want to enter the market by reducing the social welfare, cost of owning resources, set-up and even research costs. For the capital flows they determine the economic standards, convergence and regional growth. In turn trade, labor, employment and the aggregate outcome of the market program are controlled that delays new industry entry.

For a potential new entrant (i.e., a client who hired you for consulting advice) who faces this barrier, what is one viable option for it to consider should it still want to enter the car rental industry (as we discussed in the lecture), be competitive, and not accept below-normal performance? Give this client a game plan.

For a potential new entrant facing this barrier, the game plan out of this is, getting prepared to face the barrier through research regarding the total costs of production. This this, ensure that there is adequate capital for set-up and developing advanced approaches to attract customers in the reduced demand environment. Ensure that the product is safe and of high quality to entice clients and with such one is able to enter the market.

Explanation:

The threat of the new entrant does face not only the firms from the same industry but across different industries too. For instant, when an industry dominates the market, controlling the resources and the prices rises the economy of scale in that, a new industry will be challenged to enter the market. The technology for instance will be too high, the pricing, and the economy standard in general. For this, the regional growth and convergence rises and the cost of production in that it will cause a delay or failure to sustain business in such a market thus directly being a barrier to industrial entry to the market. Thus for an industry to enter market, there is need for adequate preparedness especially on the set-up cost and sustainability.