Question

List the three reasons that competitive firms are exposed to the forces of competition.

Answer 1

Economies of Scale- By pressuring the aspirant to either come in on a wide scale or to embrace a cost disadvantage, these economies discourage entry. As Xerox and GE unfortunately found, economies of scale in development , testing, marketing, and operation are perhaps the biggest barriers to entry into the mainframe computer industry. Economies of size may also serve as obstacles to distribution, sales force use, funding, and virtually every other aspect of an organisation.

Product differentiation- By pushing competitors to pay aggressively to conquer customer satisfaction, brand recognition creates an obstacle. Among the reasons promoting brand recognition are advertisement, customer support, being first in the market, and quality discrepancies. In soft drinks, over-the-counter medications, cosmetics, investment finance, and public accounting, this is probably the most major entry hurdle. Brewers couple brand identification with economies of scale in manufacturing, delivery, and marketing to build high fences around their firms.

Capital Requirements- In order to succeed, the requirement to spend substantial financial resources poses a barrier to entry, particularly if the capital is needed for unrecoverable expenses in up-front ads or R&D. In addition to fixed facilities, capital is required for consumer credit, inventories, and the absorption of start-up losses. Although large companies have the financial resources to conquer almost every market, in some sectors, such as machine manufacturing and mineral mining, the enormous capital requirements narrow the pool of probable entrants.