Question

Which of the types of barriers to entry 1-7, 1) barriers created by government (e.g. professional licenses for electricians, patents, the minimum wage); 2) economies of scale (e.g. Eversource); 3) essential input barriers (e.g. OPEC); 4) brand loyalties (e.g. Kleenex); 5) consumer lock-in (e.g. Microsoft); 6) network externalities (e.g. Verizon); and 7) sunk costs (e.g. Boeing and Airbus). above, is it ethical for a seller to use to maintain its market power, if not to use that market power to raise price?

Answer 1

1. Barriers to entry by government which prevent a startup from entering the industry. These restrictions include various forces that determine the competition and affects bargaining power and purchasing power. For example: the minimum wages licenses, patents and electricians etc. Government limits the entry with various controls by licensing.

2. Economies of scale which discourages the potential of competitors from entering the industries. This encourages the monopolistic power in the firms, which decreases with increasing scale. This includes through bulk buying of raw materials with long term contracts. This leads to specialization in the working of firms.

3. Input barriers – This also includes the legal, technological or market forces and this prevent potential competitors from entering industry. For example: OPEC is a practical example, which is a monopoly. This is one of the natural monopoly, where the restrictions are on the entry by legal prohibition. One is natural monopoly, where the barriers to entry are something other than legal prohibition.

4. Brand loyalties – These barriers are on the entry in term of describing factors of the business firms. This prevents the newcomers into a industry or market and limit the competition and power. Some restrictions are because of government intervention, while some occur naturally. Kleenex is a brand for facial tissue, paper towels, diapers. This usually used trademark for facial tissue, tampons etc.

5. Consumer Lock – in – this a major barrier for adopting of cloud computing, due to less simplification and standardization. The solutions and efforts for tackling the lock in. this highlights the complexity and competition. There are some standards like the Microsoft face the barriers like lock-in and use applications when they take services from vendors.

6. Network externalities are also the major barrier which restrict the working of big firms and limits the competitive. The networking elements are the barriers by which the restrictions are acted.