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Rivalry Among Existing Firms

Autor:   •  October 13, 2017  •  736 Words (3 Pages)  •  410 Views

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- Q8

- Companies can create legal barriers like copy rights, patents and licenses.

- The economies of scale and scope can also be the barrier. Intended players are at cost disadvantage to compete with existing firms. High research and development cost can also be the barrier.

- Companies can build brand value and customer loyalty in order to create barriers.

- When companies have entered into exclusive agreements with distribution channels and suppliers, it is hard for a new player to enter the market.

- Companies can choose products with high switching costs.

The factors that determine whether these barriers to be enduring can be technology development, period of investment and regulations. Most legal barriers have a certain effective duration. Even if a patent is currently effective, new substitutes may come out as technology develops. Switching costs are also subject to technology development. It is hard to maintain brand value without advertisement investments. Some new laws, policies and regulations may also change the barriers to entry.

- Q9

- Disagree. Some products is hard to differentiated and can be easily replaced by substitutes, such as milk and packaged ice. The only differentiation for these kind of products is brand value which requires heavy investments on advertisements. The differentiation for such products are both costly and unpromising. The cost for differentiation are likely to exceed the price premium.

- Disagree. High technology can’t be less profitable than low technology. The personal computer industry doesn’t have high barriers to entry and is very competitive. The suppliers Microsoft and Intel have strong bargaining power.

- Disagree.The cost of raising capital is usually related with the risk of the company such as interest rate. In fact, the reasons can be economies of scales. Also, large investments sometimes are involved with high production that exceeds customer demands. The existing firm can cut prices to fill capacity which could also create barriers to entry.

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