Question

1. Pick an industry where there is a dominant firm. Assume that you are the CEO of that firm. What specific measures would you take to deter entry, if any?

2. Still assume that you are the CEO of the firm and an entry has been made. How would you respond? Would you do anything specifically to cause the firm to exit, if any?

3. Suppose that you are an entrepreneur. Pick a specific industry (in which there is a dominant firm that is profitable) into which you would like to enter. What entry-barriers do you see? What post-entry response do you anticipate, if you nevertheless decide to enter the industry?

4. Suppose that you are a manager of a firm in a specific industry. Would there anything that government can do through regulations that might reduce competition and enhance your profit? How would you go about obtaining such regulations? (Ignore for the moment the question of the desirability of the act of rent-seeking.)

Answer 1

1. Let's pick the Chemicals Industry as an instance. In the Chemicals industry today, DuPont is the clear market leader/dominant firmwhose two most important businesses are performance & safety materials and agriculture & nutrition based products. Assuming I am the CEO of the firm, I will take the following steps to restrict the entry of new players in the chemicals industry market :

• Continued capacity expansion in emerging markets : Since I as a firm already have a considerable market share, greater than any other company, I will furtehr protect it by expnading to as many geographies as possoble to further sustain my position.
• Patents and Licenses : I, as a firm will get the maxiumum amount of patents and licenses for my products to prevent other firms from replicating my technology/products.
• Creating a detailed and exhaustive distribution network across the world : This will make it difficult for any new firm to fight the strong distribution network of my firm.
• Exclusive Right to the Resources used in the chemical Industry : Getting legal and exclusove rights to use a particular resource, to prevent its usage by any other firm and this restrict it from entering the industry.
• Achieving Economics of Scale : This will create a major barrier for new players to enter my industry since, achieving economies of scale initially is very tough, thus restricitng entry.