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Competitive Dynamics: Entry and Exit

Competitive Dynamics: Entry and Exit. Market Entry and Exit. Entry and Exit conditions help determine long-term profitability in an Industry at least for the initial firms why not for others? Dynamic competition and the role of entry market structure vs. market dynamics

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Competitive Dynamics: Entry and Exit

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  1. Competitive Dynamics:Entry and Exit

  2. Market Entry and Exit • Entry and Exit conditions help determine long-term profitability in an Industry • at least for the initial firms • why not for others? • Dynamic competition and the role of entry • market structure vs. market dynamics • actual competitors vs. potential competitors • Barriers to entry can be critical determinants of industry competitiveness and firm profitability

  3. Entry Barriers • Barriers to entry • control of essential resources - Example: diamond mines • Economies of scale and scope - particularly relative to size of the market • specific advantages of incumbency - special knowledge that is not available to entrants

  4. Entry deterring strategies • Can cover several elements, including: • Aggressive pricing -price cuts to expand market and exploit learning economies • predatory(?), limit pricing, early announcements • Building excess production capacity • Advertising • Legal / regulatory / legislative avenues • patents, legislative lobbying, lawsuits • In general, reputational investments, signaling

  5. Exit promoting behavior • Investment in reputation – examples: • Standard Oil • Wal Mart • Microsoft • DeBeers • Price wars and firm size • size advantages to survival • “war of attrition”

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