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Terms in this set (26)

• Patents: A patent keeps an invention the property of the inventor for a number of years thus granting them the sole right to exclude others from making, using, or selling that invention.
• Limit-pricing: Firms may adopt predatory pricing policies by lowering prices to a level that would force any new entrants to operate at a loss.
• Cost advantages: This is when incumbent firm can lower costs, perhaps through experience of being in the market for some time, which allows them to cut prices and win price wars.
• Advertising and marketing: Developing consumer loyalty by establishing branded products can make successful entry into the market by new firms much more expensive. This is particularly important in markets such as cosmetics, confectionery and the motor car industry.
• Research and Development expenditure: Heavy spending on R&D can act as a strong deterrent to potential entrants to an industry. Most of the R&D expenditure goes towards developing new products but it also allows for firms to improve their production processes and reduce unit costs. This makes the existing firms more competitive in the market and gives them a structural advantage over potential rival firms.
• Presence of Sunk Costs: some industries have very high start-up costs or a high ratio of fixed to variable costs. Some of these costs might be unrecoverable if an entrant opts to leave the market. This acts as a disincentive to enter said market. When sunk costs are high, a market becomes less contestable. High sunk costs (including exit costs) act as a barrier to entry of new firms (they risk making huge losses if they decide to leave a market).
• International trade restrictions: Trade restrictions such as tariffs and quotas should also be considered as a barrier to the entry of international competition in protected domestic markets.
• Economies of Scale: allows large firms to enjoy low costs of production and therefore new firms operating on a smaller scale will find it hard to compete.
• Technological spill-over: This can lead to the development of rival products that copy or imitate the characteristics of the incumbent firms.
• Technological change: The impact of new technology is having a huge effect, not least because it brings down some of the entry costs in some markets (leading to an increase in capital mobility). The rapid expansion of e-commerce for example has led to the emergence of new players in the travel sector and online gambling, insurance and many other markets.
• Entrepreneurial zeal: It is often the case that markets become more competitive because of the persistence of entrepreneurs who simply do not accept that the existing market structure is a given. Decisions to enter markets where there are already dominant businesses with significant industry experience involves taking risks - but a new supplier may have the advantage of product innovation or a more competitive business model based on different pricing strategies.
• De-regulation of markets: (aka market liberalisation), de-regulation involves the opening up of markets to competition by reducing some of the statutory barriers to entry that exist. Good examples of recent deregulation include the main utilities such as gas and electricity and also the liberalisation of telecommunications and postal services as part of the EU competition initiatives.
• Competition policy: Tougher competition laws acting against predatory behaviour by existing firms are designed to make markets more contestable. In both the UK and the EU this has included tougher rules against price fixing cartels. When market contestability is weak, there is nearly always greater scope for cartel-type behaviour by the existing firms, particularly if the market structure in which they operate comes close to an oligopoly.
• The European single market: The development of the single European market has opened up markets for member nations. E.g. home and car insurance and also the entry of western European clothes retailers onto the UK high streets and shopping malls.
• The recession: an economic downturn can have the effect of opening up markets to new businesses. For example, the recession and subsequent slow recovery has also led to an increase in market share for a number of discount food retailers such as Aldi and Lidl - taking away some of the market share from dominant food retailers.