Threats of New Entrants
Threat of New Entrants: Barriers to Entry
Economies of scale
Product differentiation
Capital requirements
Switching costs
Access to distribution channels
Cost disadvantages independent of scale
Government policy
Expected retaliation
Barriers to Entry
Economies of Scale
Marginal improvements in efficiency that a firm experiences as it incrementally increases its size
Factors (advantages and disadvantages) related to large- and small-scale entry
Flexibility in pricing and market share
Costs related to scale economies
Competitor retaliation
Barriers to Entry (cont’d)
Product differentiation
Unique products
Customer loyalty
Products at competitive prices
Capital Requirements
Physical facilities
Inventories
Marketing activities
Availability of capital
Switching Costs
One-time costs customers incur when they buy from a different supplier
New equipment
Retraining employees
Psychic costs of ending a relationship
Access to Distribution Channels
Stocking or shelf space
Price breaks
Cooperative advertising allowances
Barriers to Entry (cont’d)
Cost Disadvantages Independent of Scale
Proprietary product technology
Favorable access to raw materials
Desirable locations
Government policy
Licensing and permit requirements
Deregulation of industries
Expected retaliation
Responses by existing competitors may depend on a firm’s present stake in the industry (available business options)
Bargaining Power of Suppliers
Supplier power increases when:
Suppliers are large and few in number.
Suitable substitute products are not available.
Individual buyers are not large customers of suppliers and there are many of them.
Suppliers’ goods are critical to the buyers’ marketplace success.
Suppliers’ products create high switching costs.
Economies of scale
Product differentiation
Capital requirements
Switching costs
Access to distribution channels
Cost disadvantages independent of scale
Government policy
Expected retaliation
Barriers to Entry
Economies of Scale
Marginal improvements in efficiency that a firm experiences as it incrementally increases its size
Factors (advantages and disadvantages) related to large- and small-scale entry
Flexibility in pricing and market share
Costs related to scale economies
Competitor retaliation
Barriers to Entry (cont’d)
Product differentiation
Unique products
Customer loyalty
Products at competitive prices
Capital Requirements
Physical facilities
Inventories
Marketing activities
Availability of capital
Switching Costs
One-time costs customers incur when they buy from a different supplier
New equipment
Retraining employees
Psychic costs of ending a relationship
Access to Distribution Channels
Stocking or shelf space
Price breaks
Cooperative advertising allowances
Barriers to Entry (cont’d)
Cost Disadvantages Independent of Scale
Proprietary product technology
Favorable access to raw materials
Desirable locations
Government policy
Licensing and permit requirements
Deregulation of industries
Expected retaliation
Responses by existing competitors may depend on a firm’s present stake in the industry (available business options)
Bargaining Power of Suppliers
Supplier power increases when:
Suppliers are large and few in number.
Suitable substitute products are not available.
Individual buyers are not large customers of suppliers and there are many of them.
Suppliers’ goods are critical to the buyers’ marketplace success.
Suppliers’ products create high switching costs.