The
threat of entry may be sufficient to ensure
that established firms constrain their prices
to the competitive level.
Barriers to entry :
Capital
requierements :
capital
costs of getting established in an industry
can be so large as to discourage all but the
largest companies.
Economy
of scale :
Entering on a small scale
and accepting high unit costs or entering
on a large scale and running the risk of drastic
underutilization of capacity
Absolute
cost advantages :
Established firms may
have a cost advantage over entrants simply
because they entered earlier.
Product
differenciation :
In an industry where products
are differenciated, established firms possess
the advantages of brand recognition and customer
loyalty.
Alternatively, the new
entrants can accept a niche position in the
market or can seek to compete by cutting price.
Reputation and close customer-supplier
relationships impose similar problems for
new entrants
Access
to channels of distribution :
Whereas lack of brand
awareness among consumers acts as a barrier
to entry to new suppliers of consumer goods,
the more immediate barrier for the company
is likely to be gaining distribution (limited
capacity whithin distribution channels, risk
aversion by retailers, fixed costs...)
Governmental
& legal barriers :
Licence, patents, copyrights,
trade secret
Retaliation
:
Retaliation by established
firms (agressive price cutting, advertising,
sales promotion)
N.B.
Studies found profitability was higher in
industries with very high entry barriers
Source :
Contemporary Strategic Analysis, Robert M. Grant, 3th edition, Blackwell, 1998, p. 51-
65