Question

What are the Legal Barriers, Economies of Scale, and the Control over and Important Input in the Oil Industry?

Answer 1

The Barriers to entry are the legal, technological, or market forces that discourage or prevent potential competitors from entering a market. ... In other cases, they may limit competition to a few firms. Barrier smay block entry even if the firm or firms currently in the market are earning profits.

economies of scale of barrier:

The characteristics of a production process in which an increase in the scale of the firm causes a decrease in the long run average cost of each unit.

Economies of scale and network externalities discourage potential competitors from entering a market.

Economies of scale are cost advantages that large firms gain because of their size.

Natural monopolies arise as a result of economies of scale. Natural monopolies have overwhelming cost advantages over potential competitors.

Network effects occur when the value of a good or service increases because many other people are using it. This makes competing goods or services with lower levels of adoption unattractive to new customers.

Economic control of barrier for gas nd oil firms

The specific barriers to entry faced by the oil and gas sector are as follows:

High startup costs mean that very few companies even attempt to enter the sector. This lowers potential competition from the start.

Proprietary technology forces even those with high startup capital to face an immediate operating disadvantage upon entering the sector.

High fixed operating costs make companies with startup capital wary of entering the sector.

Local and foreign governments force companies within the industry to closely comply with environmental regulations. These regulations often require capital to comply, forcing smaller companies out of the sector.