Question

Evaluating the prospect of entry, an entrant may fear that engaging in head to head competition post-entry with the incumbent may result in severe losses. Some companies manage to make a virtue out of staying small when entering markets dominated by large incumbents. Discuss when you expect this strategy to work. In the second part of your essay, discuss a real-world case in which an entrant tried to commit to be soft when entering a market. Explain how effective this strategy was. Could it have been made more effective?

Answer 1

In monopolistic competitive markets, new firms were attracted to the market with high profit in the existing firms. So there is an attraction towards the profits of the existing firms in the market. Some incumbent firms face high losses. Others get normal profit after some time of their entry. There are two dimensions for the entry of new firms; degree of target market profits and competitors focus. Competitors focus dimension explain the degree of the external motivation affected by the competitors rage from independent entry to fully competitor oriented entry decisions. Firm’s operational size and their competitive intensity upon new markets are the other major factors which affect the entry of new firms. Monopolistic firm’s price cutting, expansion and contraction of outputs attract new firms. There is a price cutting till the demand covers the average cost. So in long run, these firms acquire only normal profit. Most of the firm’s increase their production through incurring the selling cost includes advertisement. This will attract more consumers to the market and also increase the level of output in the market. The selling cost by the existing firm through lowering price and improving the quality. This improved quality attracts more firms to the industry.  
The entry of Jio phone to the mobile and telecommunication market make huge changes. If increase the efficiency and confident among the customers. A new firm attract large number of firms than the existing firms. The policies which implemented by the new firms are free data and phone calls for first 3 months, unlimited expansion of the plan, unlimited SMS service to anywhere in the world. This attracts the customer to change their connection from the existing one to the ne connection. So this makes efficiency in the market by expanding the plans of the existing firms. So there is high level of growth attained by all the mobile companies in the economy. Entry of new firms increases the overall productivity and the production of the industry. One of the significant change occurred in the market after the entry of Jio to the market.