Competitive Environment Questions - Essay Example

It takes place in imperfect market and monopoly market is a perfect example which provides restraints towards entry. There are no barriers to entry in a perfectly competitive market where the firms are price takers and have no power of price making behavior. Barriers to entry may be structural, legal or strategic (Besanko, et al, -2010, p. 473). Structural barriers affect the decisions associated with the cost and demand of the firms and it may occur due to economies of scale and network effects.

Legal barriers from its name can be said to be barriers like patents, license etc from the ruling body. In case of strategic barriers, it includes various decisions made by the firms in restricting the entry of other firms with application of methods like innovative dealing arrangements, first mover advantage, and unique advertising and product differentiation techniques and so on (Competition and Barriers to Entry, 2007, p.3). 1 (b) Comment generally on the impact of ‘the Internet’ on such barriers Internet auction market is an example of structural barriers to entry.

The concept of positive network externality plays an important role in this case. The concept of positive network externality states that when a firm’s product is more attractive to a given customer base then more of the product is used by other consumers. Recent eBay. Com has emerged as one of the internet auction leader and its huge database offers the customers a wide array of products to be purchased at a time. The huge volume of transactions on this particular website is a typical example of barriers to entry towards other internet auction companies as in case of eBay they make huge money through the basis of commissions on transactions.

Now a newcomer will have to either huge money which will not cover his cost or it will not be attractive as eBay because it already has a great market reputation and mammoth customer base (Besanko, et al, -2010, p. 473).The concept of strategic barriers to entry is also associated with the structural barrier concept as the various companies through innovative production differentiation techniques like innovative advertisement, promotions, lucrative offer also try to capture markets as for example jabong.

com, flipkart.com, snap deal.com and holds parity with the assumptions of monopolistic competition. In case of the airlines industry, with the use of internet has helped various travel agents reap a huge benefit through third party transactions on commission basis which affects the traditional travel agencies. Thus legal barriers are sometimes imposed (Dembrower & Grenblad, 2003, p. 3). 2. Explain and give examples of ‘collusive behaviour’, which is common in ‘Oligopolistic’ markets, AND identify the conditions necessary for ‘collusive agreements’ to survive in the long term.

In oligopolistic markets various players cater to the same industry as for example in the soft drinks market two dominant players are Coca Cola and Pepsi. They formulate and implement optimal strategies against their rivals in order to make them worse off by calculating on their respective reaction functions (Bertrand game). Thus the