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Discussion 9- economics-tactics for competitors - Assignment Example

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Each of the airlines in the industry must decide whether it is their best interests to resist discounting in order to gain market share or risk losing in the end. Most firms use entry-deterrent strategies to prevent new firms especially low discounters from entering the market…
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Discussion 9- economics-tactics for competitors
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Tactics for competitors Insert Insert Each of the airlines in the industry must decide whether it is their best interests to resist discounting in order to gain market share or risk losing in the end. Most firms use entry-deterrent strategies to prevent new firms especially low discounters from entering the market. Entrants threaten incumbents in two ways. Firstly, entrants take a portion of the market share thus reducing incumbent’s proportion of the profits. Secondly, entry into the market increases competition that reduces overall profits for incumbents. Faced by these threats, incumbents develop strategies that deter new firms from entering the market. Large scale entry-deterrence is evident in the airline industry (McGuigan, Moyer, & Harris, 2008). Some entry-deterring strategies include capacity expansion, limiting prices and predatory pricing.
Incumbents in the airline industry adjust their prices to neutralize the threat of entry in the airline bsiness. Adjusting prices limits contestability in the market. Incumbents can charge low prices before entry, charge low prices to push new firms out of business and shape expectations of new firms towards competition. Competition from southwest airlines and other firms results in the reduction of fares in the airline industry. The approach of limiting prices is to deter new firms from entering the market. Entry of firms such as southwest and people express forces incumbent firms to develop entry-deterring strategies in order to reduce competition. The incumbents decide whether to adjust prices or enter the business with large scale carriers. In order for new firms to successfully enter the market, they need to analyze entry conditions into the market before making their decisions. Before starting business new firms must understand the extent of entry barriers, consequences of entry barriers and develop counter measures to these barriers.
References
McGuigan, J., Moyer, R., & Harris, F. (2008). Managerial Economics: Application, Strategy, and Tactics, 12th Edition. Mason: South Western, Cengage Learning. Read More
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