Competitive Dynamics: Entry and Exit

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Competitive DynamicsEntry and Exit
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Market Entry and Exit

• Entry and Exit conditions help determine
  long-term profitability in an Industry
• at least for the initial firms
• why not for others?
• Dynamic competition and the role of entry
• market structure vs. market dynamics
• actual competitors vs. potential competitors
• Barriers to entry can be critical determinants of
  industry competitiveness and firm profitability

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Entry Barriers

• Barriers to entry
• control of essential resources - Example diamond
  mines
• Economies of scale and scope - particularly
  relative to size of the market
• specific advantages of incumbency - special
  knowledge that is not available to entrants

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Entry deterring strategies

• Can cover several elements, including
• Aggressive pricing - price cuts to expand market
  and exploit learning economies
• predatory(?), limit pricing, early announcements
• Building excess production capacity
• Advertising
• Legal / regulatory / legislative avenues
• patents, legislative lobbying, lawsuits
• In general, reputational investments, signaling

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Exit promoting behavior

• Investment in reputation examples
• Standard Oil
• Wal Mart
• Microsoft
• DeBeers
• Price wars and firm size
• size advantages to survival
• war of attrition