Entry and exit

Question 1

What are entrants?

Answer 1

Firms that begin to produce and sell in existing markets

Question 2

What are three ways entrants threaten incumbents?

Answer 2

• Reducing their market share
• Increasing competition
• Reducing profitability

Question 3

Sunk costs for incumbents are __ costs for new entrants

Answer 3

Incremental

Question 4

Firms must carry out a __ __ analysis before entry

Answer 4

Cost benefit

Question 5

Managers should account for their __ __ __ competitors

Answer 5

Unknown potential future

Question 6

Barriers for entry are factors that:

Answer 6

• Allow the incumbents to earn economic profit

- Make it unprofitable for new firms to enter the industry

Question 7

Barriers to entry can be classified into:

Answer 7

• Structural barriers

- Strategic barriers

Question 8

Structural barriers to entry exist when:

Answer 8

• Incumbents have cost advantages
• Incumbents have marketing advantages
• Incumbents are protected by favourable government policy and regulations

Question 9

What are the three main types of natural structural barriers to entry

Answer 9

• Incumbent’s control of essential resources
• Economies of scope and scale
• Marketing advantage of incumbency

Question 10

What can patents do?

Answer 10

Prevent rivals from imitating a firm’s products

Question 11

If economies of scale are significant, potential entrants may face cost:

Answer 11

Disadvantages

Question 12

Economies of scope in production exist in multiple product lines when:

Answer 12

Multiple product lines are produced in the same plant

Question 13

Sunk costs make the marginal cost of staying in the market:

Answer 13

Low

Question 14

How can incumbents erect strategic barriers by:

Answer 14

• Expanding capacity
• Resorting to limit pricing
• Resorting to predatory pricing