Question

Business Strategy in Economics:

Discuss the differing ways that an established dominant firm in an industry can react to the threat of small firms and potential entrants. In particular, consider the determinants of an aggressive entry-limiting and/or predatory approach vs. a more accommodative strategy. From the standpoint of society is there a preference for one or the other?

Answer 1

Those company who are dominant firm in the industry and they are also having a control over the market share, then they have different approach to deal with various firms who are entering into the industry for the first time and they can either adapt to aggressive entry limiting or they can also adopt to more accommodative strategy.

Entry limiting strategy and predatory pricing is always leading to elimination of smaller firms in the industry and it will not allow small firms to sustain and survive in the industry because the dominant Firms are having a leverage in setting lower cost and once they eliminate their competitive they are going to raise their price for the customer,whereas accommodative strategies are related to providing every company a place in the industry in order to compete and provide quality service to the customers and it is benefit for the customers to receive the quality service from a large number of company and have a different number of substitutes.

From the standpoint of society, there is a preference for the accommodative strategy because the consumer will be getting better products and they will also have the quality of having a larger number of substitute in their hands so they will not be having limits and they will have choices to select from a wide range of products and it will enhance the consumption pattern in the society.