Question

What barriers to entry do leagues use to prevent rivals from entering? Are any of those illegal? How do rival leagues break through? What are the consequences of a rival league being successful?

Answer 1

Answer

a. Firstly,there are two types of leagues;one is Cartel and and the other is Complex monopoly.Complex monoploy is when major individual firms in the industry act as one in terms of fixing the price.There is no legal agreement between the firms;it is just a mutual understanding between them.

We call it a cartel when a set of major producers of a good form a group and decide on the price and production quantity to be supplied by each member in the group.There is a formal agreement in between the firms in terms of price and production quantities.Example: OPEC is cartel in global oil producing industry.So they as one group create barriers of entry to prevent the new players from entering the market.In a way we can call these barriers as advantages the member firms in the cartel are enjoying but are not available to the their rivals.Due to cartel formation,the member firms benefit a lot in terms of explicit agreements between one another ; they control the price and production quantity so member firms can plan their production capacity utilitisation etc.,well in advance leading to their improved operational efficiency and reduction in cost of production and other expenses.

Some times they even try to eliminate competition by increasing their production temporarily due to which supply in the market increases suddenly leading to reduction in prices.Due to this some players will stop producing as the market price has gone below their cost of production(i.e.,they are incurring losses).So these cartel(s) gain the market share and so they will again increase the price as when required.

b.They are illegal when implemented in a country(competition commissions will take charge) but legal (even though unethical) on a global scale as there are no strict regulations governing them.

c.When there are more than one cartel in the industry,the one with lower cost of production,better expilcit agreements with clients,higher market share in the industry,higher quality of product will be at advanatage.So the rival groups compete on these criteria.

d. For example,take the case of OPEC."If it's rival group becomes successful" i.e., grabs their market share then OPEC slowly gets dissolved after some time because the member firms will not continue to enjoy the benefits they previously had in terms of price and quantity.So we can say that market share is that all matters....