Barriers to Entry & Exit - A case study on Singapore Power
Barriers to Entry & Exist: A case study on Singapore Power.
Singapore Power was first created to take over the electricity and gas business of the state provider, the Public Utilities Board in 1995 and was once considered as the only electricity company in Singapore. However, in 2001, Singapore Government took further steps in industry reform: separation of the natural monopolies (i.e. grid) from the competitive domain (i.e. generation and retail) in order to encourage competition and drive firms to be more cost-effective and avoid monopoly status that may hold negative effects for both the industry and consumers such as marketing complacency and loss of consumer solvency. Grid remained under Singapore Power, while each power plant was set up as a separate company to compete with one another. To name a few are: Senoko Power Ltd, Tuas Power Ltd, Keppel Merlimau Cogen Pte Ltd, Island Power Company Ltd…
A. BARRIERS TO ENTRY:
What are barriers to entry?
“Barriers to Entry” are those factors that allow incumbent firms to earn positive economic profits while making it unprofitable for newcomers to enter the industry.
There are two types of barriers to entry:
Structural barriers to entry
Strategic barriers to entry
1) Structural barriers to entry:
Structural barriers to entry have more to do with basic industry conditions such as cost and demand than with tactical actions taken by incumbent firms.
Methods of structural barriers to entry used by Singapore Power:
a. Control to essential resources
An incumbent is protected from entry if it controls a resource necessary for production and can use that resource more effectively than newcomers. In the case of Singapore Power, one of its subsidiaries, PowerGas has been Singapore’s sole licensed gas transporter and system operator since 1995, delivering both natural gas and town gas. This puts the whole Singapore Power at a prerogative position since Singapore Electricity Fuel Mix mostly relies on natural gas
Singapore Power was first created to take over the electricity and gas business of the state provider, the Public Utilities Board in 1995 and was once considered as the only electricity company in Singapore. However, in 2001, Singapore Government took further steps in industry reform: separation of the natural monopolies (i.e. grid) from the competitive domain (i.e. generation and retail) in order to encourage competition and drive firms to be more cost-effective and avoid monopoly status that may hold negative effects for both the industry and consumers such as marketing complacency and loss of consumer solvency. Grid remained under Singapore Power, while each power plant was set up as a separate company to compete with one another. To name a few are: Senoko Power Ltd, Tuas Power Ltd, Keppel Merlimau Cogen Pte Ltd, Island Power Company Ltd…
A. BARRIERS TO ENTRY:
What are barriers to entry?
“Barriers to Entry” are those factors that allow incumbent firms to earn positive economic profits while making it unprofitable for newcomers to enter the industry.
There are two types of barriers to entry:
Structural barriers to entry
Strategic barriers to entry
1) Structural barriers to entry:
Structural barriers to entry have more to do with basic industry conditions such as cost and demand than with tactical actions taken by incumbent firms.
Methods of structural barriers to entry used by Singapore Power:
a. Control to essential resources
An incumbent is protected from entry if it controls a resource necessary for production and can use that resource more effectively than newcomers. In the case of Singapore Power, one of its subsidiaries, PowerGas has been Singapore’s sole licensed gas transporter and system operator since 1995, delivering both natural gas and town gas. This puts the whole Singapore Power at a prerogative position since Singapore Electricity Fuel Mix mostly relies on natural gas