Barriers-to-entry Examples Investment To achieve minimum efficient scale‚ it is estimated that a RTE cereal plant needed to produce 75 million pounds per year‚ which requires a capital investment in excess of $100 million and about 125 employees. High Research and Development Cost The RTE cereal industry spent about 1% of gross sales on R&D in 1993‚ whereas the food industry spent only 0.7% of gross sales. It requires 2-4 years and $5-10 million to develop a new brand Distribution barrier
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Ready To Eat Breakfast Cereal Industry Monday‚ September 09‚ 2013 3:09 PM The Big 3 and the industry before the 1990’s 1972 Federal trade Commission file a major antitrust suit against the big 3 (Kellogg‚ General Mills‚ and General Foods) Argued: Monopolized cereal market and had taken specific steps to deter entry by new firms How? Restrained competition amongst themselves through "unwritten agreements" to limit the in-pack premiums (free toys‚ gifts‚ e tc) -Refrain from trade
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The RTE Cereal Industry in 1994 Case Analysis Competitive Strategy Presented by: Raghav Keshav Why has RTE cereal been such a profitable business? The RTE cereal market is a classic oligopoly with the four dominant players controlling 85% of the market. The return on sales earned by the incumbents in this market (18%) is significantly higher compared to rest of the food industry (5%). Efficient markets typically entice new entrants when the returns are attractive. These returns are gradually
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Reason for the high-profitability of the RTE cereal business: The "Big Three" cereal manufacturers have jointly monopolized the market and have reaped high profits from their monopoly pricing combined with the tacit co-ordination they share regarding price hikes. The "Big Three" have backed up their monopoly strategy with their strong relationships with each other and with regional and national grocers. This relationship allowed them to control or buy shelf space and ideal positioning of their product
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Barriers to market entry include a number of different factors that restrict the ability of new competitors to enter and begin operating in a given industry. For example‚ an industry may require new entrants to make large investments in capital equipment‚ or existing firms may have earned strong customer loyalties that may be difficult for new entrants to overcome. The ease of entry into an industry in just one aspect of an industry analysis; the others include the power held by suppliers and buyers
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how barriers to entry may affect market structure In some market it is easier to enter than in others due to the barriers to enter. Those barriers determine how many producers there will be in a market and therefore its structure. If there are lot of barriers to entry there will be market structure such as monopoly or oligopoly; if there are no barriers to entry‚ or just few of them‚ there will be market structure such as perfect competition or monopolistic competition. When the barriers to entry
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Definitions. Barriers to entry are economic‚ procedural‚ regulatory‚ or technological factors that obstruct or restrict entry of new firms into an industry or market. Barriers to exit are perceived or real impediments that keep a firm from quitting uncompetitive markets or from discontinuing a low-profit product. 2. Types of barriers: Innocent barriers are those that are part and parcel of the nature of the industry and have not been specially erected by the incumbents to hinder the entry of other
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boundaries of RTE cereal industry from a demand-side perspective and a supply-side perspective respectively. The boundaries from a demand-side perspective in this case are the fact that buyers have low switching costs. The cereal industry has a diversified range of products so consumers can easily substitute one type of cereal for another or one brand for another. From the supply-side perspective‚ boundaries are technological in nature such that larger firms can produce many different types of cereals in large
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Using suitable examples define barriers to entry. Explain how barriers to entry affect our firm’s profits. Before a firm can compete in a market‚ it has to be able to enter it. Many markets have at least some impediments that make it more difficult for a firm to enter a market. A debate over how to define the term “barriers to entry” began decades ago‚ however‚ and it has yet to be won. Some scholars have argued‚ for example‚ that an obstacle is not an entry barrier if incumbent firms faced it when
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What are the entry barriers to the Las Vegas Casino Resort market? When one thinks of casinos‚ one cannot escape from Las Vegas. Despite Nevada legalizing gambling in 1931‚ today‚ the notorious Las Vegas strip is dominated by several key players and the reason why this is so is due to the barriers to entry‚ defined as obstacles faced by potential new entrants‚ existent in the Las Vegas casino resort market. The entry barriers are explained below. Government Policy While the lucrative nature
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