Question

1. 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?

2. 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

ANSWER 1. The industry which I will opt would be Oil and natural gas sector. Demand for the above industry is very high and supply is low due to high level entry barriers. This industry has a huge potential for profits.

Following barriers could be as follows:

• The operating cost is very high
• Very high start up cost
• The technology requires a large portion of start up capital
• State and central government have levied environmental policies which have to be complied with.
• Government policy and control over raw material and licensing.
• Proper distribution channel has to be worked upon.

Following could be entry anticipations

• Slow industrial growth and development
• Previous record of strong push back for the new entrants
• Firms established within the industry are committed with high liquid assets

Answer 2. Following things government can do through regulations that might reduce competition

1. Without government interference, a firm could not increase price above the competitive equilibrium.

2. A firm should maintain a good quality service as government regulation can ensure that the firm should meet the standards.

3. Investigation and breaking of monopoly powers by any firm by the government to protect consumers from paying more.

Advantages of regulations could be used by the following ways

1. Environmental regulations could be followed strictly so as to avoid future uncertainties.

2. Violating the laws relating to advertising could lead to hamper of work in future. They must be used in the prescribed manner.

3. Employment regulations must be complied so as to provide a good working environment to the workers.