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Barriers to Entry and Exit
Barriers to entry and exit• Block potential entrantsfrom making a profit• Protect the monopolypower of existing firms• Mai...
Barriers to Entry?V
Economies of scale Vertical integration Brand loyaltyControl of importanttechnologiesExpertise andreputation
Google’s Dominance – Entry BarriersGoogle controls almost 90per cent of the searchmarket in the UK, andalmost 96 per cent ...
Strategies to Limit CompetitionLimit pricing tactics Predatory pricing tacticsBrand proliferation
Strategies to Limit CompetitionLimit pricing tactics Predatory pricing tacticsBrand proliferationWhen a firm sets pricelow...
Strategies to Limit CompetitionLimit pricing tactics Predatory pricing tacticsBrand proliferationWhen a firm sets pricelow...
Strategies to Limit CompetitionLimit pricing tactics Predatory pricing tacticsBrand proliferationWhen a firm sets pricelow...
Legal Entry BarriersMarket licences Patent protectionState awarded franchises Import controls
Cost & PriceOutput (Q)Costs and contestability in different industriesCost & PriceOutput (Q)Low MES, limited scaleeconomie...
Cost & PriceOutput (Q)Costs and contestability in different industriesLow MES, limited scaleeconomies, contestable marketL...
Q3Q2Q1Cost & PriceOutput (Q)Costs and contestability in different industriesLow MES, limited scaleeconomies, contestable m...
Cost & PriceOutput (Q)Cost Advantages for Existing / Established BusinessesCost advantage for Firm A overa potential rival...
Cost & PriceOutput (Q)Cost Advantages for Existing / Established BusinessesCost advantage for Firm A overa potential rival...
Cost ,PriceQuantity of outputPlant close-downs and market exitMCACAVCRemember that MCalways cuts AC and AVCat the minimum ...
Cost ,PriceQuantity of outputPlant close-downs and market exitMCACAVCARMRQ1P1
Cost ,PriceQuantity of outputPlant close-downs and market exitMCACAVCARMRQ1P1C1
Cost ,PriceQuantity of outputPlant close-downs and market exitMCACAVCARMRQ1P1C1Business is making a losshere because P < A...
Cost ,PriceQuantity of outputShowing the shut down price and the normal profit price on a diagram –assume this firm is ope...
Get help from fellowstudents, teachers andtutor2u on Twitter:@tutor2u_econ
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Barriers to Entry and Exit

A2 microeconomics presentation

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Barriers to Entry and Exit

  1. 1. Barriers to Entry and Exit
  2. 2. Barriers to entry and exit• Block potential entrantsfrom making a profit• Protect the monopolypower of existing firms• Maintain supernormalprofits in the long run• Barriers to entry make amarket less contestable
  3. 3. Barriers to Entry?V
  4. 4. Economies of scale Vertical integration Brand loyaltyControl of importanttechnologiesExpertise andreputation
  5. 5. Google’s Dominance – Entry BarriersGoogle controls almost 90per cent of the searchmarket in the UK, andalmost 96 per cent ofGoogles revenue still comesfrom advertisingMarket Power Through Vertical Integration
  6. 6. Strategies to Limit CompetitionLimit pricing tactics Predatory pricing tacticsBrand proliferation
  7. 7. Strategies to Limit CompetitionLimit pricing tactics Predatory pricing tacticsBrand proliferationWhen a firm sets pricelow enough todiscourage newentrants into themarket
  8. 8. Strategies to Limit CompetitionLimit pricing tactics Predatory pricing tacticsBrand proliferationWhen a firm sets pricelow enough todiscourage newentrants into themarketSetting an artificiallylow price for a productin order to drive outcompetitors
  9. 9. Strategies to Limit CompetitionLimit pricing tactics Predatory pricing tacticsBrand proliferationWhen a firm sets pricelow enough todiscourage newentrants into themarketSetting an artificiallylow price for a productin order to drive outcompetitorsSaturating the marketwith a huge range ofsimilar products
  10. 10. Legal Entry BarriersMarket licences Patent protectionState awarded franchises Import controls
  11. 11. Cost & PriceOutput (Q)Costs and contestability in different industriesCost & PriceOutput (Q)Low MES, limited scaleeconomies, contestable marketHigh MES, falling LRAC, barriers tocontestabilityLRACLRACP6
  12. 12. Cost & PriceOutput (Q)Costs and contestability in different industriesLow MES, limited scaleeconomies, contestable marketLRACQ1Minimumefficientscale (MES)Scope for many firms toreach the MESP6
  13. 13. Q3Q2Q1Cost & PriceOutput (Q)Costs and contestability in different industriesLow MES, limited scaleeconomies, contestable marketLRACQ1 Output (Q)High MES, falling LRAC, barriers tocontestabilityExtensive internaleconomies of scaleleading to lower LRACLRACNatural MonopolyMinimumefficientscale (MES)Scope for many firms toreach the MESQ4
  14. 14. Cost & PriceOutput (Q)Cost Advantages for Existing / Established BusinessesCost advantage for Firm A overa potential rival Firm BAt output Q1 – firm A has a bigcost advantage over apotential rival firm BReasons?Firm BFirm AQ1AC (B)AC (A)
  15. 15. Cost & PriceOutput (Q)Cost Advantages for Existing / Established BusinessesCost advantage for Firm A overa potential rival Firm BAt output Q1 – firm A has a bigcost advantage over apotential rival firm B1. Learning economies2. Vertical integration3. Lower customer churn4. Monopsony powerFirm BFirm AQ1AC (B)AC (A)
  16. 16. Cost ,PriceQuantity of outputPlant close-downs and market exitMCACAVCRemember that MCalways cuts AC and AVCat the minimum points
  17. 17. Cost ,PriceQuantity of outputPlant close-downs and market exitMCACAVCARMRQ1P1
  18. 18. Cost ,PriceQuantity of outputPlant close-downs and market exitMCACAVCARMRQ1P1C1
  19. 19. Cost ,PriceQuantity of outputPlant close-downs and market exitMCACAVCARMRQ1P1C1Business is making a losshere because P < ACi.e. sub-normal profit
  20. 20. Cost ,PriceQuantity of outputShowing the shut down price and the normal profit price on a diagram –assume this firm is operating in a perfectly competitive marketMCACAVC
  21. 21. Get help from fellowstudents, teachers andtutor2u on Twitter:@tutor2u_econ

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