Attractivenss of new market entry => Choice of market => Choice of entry type => Entry strategy
Structural Entry Barriers
Factors that allow incumbent firms to earn positive economic profits, while making it unprofitable for newcomers to enter the industry
Structural & Strategic barriers.
1. Control over natural resources.
2. Supplier capacity.
3. Location
4. Economies of scale, economies of learnings.
5. Marketing advantages of incumbents.
6. Customer Loyalty
Strategic Entry Barriers
Maket Entry
Types of commitment
1. High sunk cost investments.
Production Capacity.
R&D.
Advertising.
2. Exit from other strategic market segments and focus on entry.
e.g. Bloomberg
a. Innovators enter the market with inferior products which appeal to price-sensitive buyers.
b. Incumbents ignore the threat since mainstream customers don’t want those products.
c. Over time the products improve and take large chunks of the market from the incumbents.
d. market leaders can hardly respond because they find it difficult to replicate entrants’ low-cost business models.
Judo Economics
can only work when it is better for the incumbent to lose some market share to the entrant rather than to start a price war and fight back the market share for the entrant.
This is only the case if
a. The entrant has a production capacity that can serve a limited portion of the market only and the incumbent does not fear that the entrant wants to take over bigger portions of the market.
b. The incumbent has a big share of the market and would lose lots of profit when reducing the own price for all of its customers to undercut the entrant’s price.
c. The difference between the price of the entrant and pre-entry price of the incumbent is high, so that it hurts the incumbent to lower prices for all of its customers.
Commitment
Limit Pricing/Predatory Pricing
* low demand
* low cost incumbent
Pre-emption