Sunday, June 9, 2019

Industrial Economics Essay Example | Topics and Well Written Essays - 2500 words

Industrial Economics - Essay ExampleIn fact in many markets there exist around dominating firms which play the roles of market leader. These large firms in order to maintain their market share create some barriers for in the altogether firm to enter into the market. (Baldwin, 1995)Barriers to admission into a particular constancy have immense potential to diminish or entirely prevent the normal mechanism of that industry in attracting new firms towards it. To negatively affect competition in an industry along with the welfare of consumers, it is not always necessary for entry barriers to prevent firms from making their entry into that industry forever. In fact, very often these barriers can create significant effect on the performance of the market only by retarding the arrival of new entrants into it. It is of configuration true that consumer leave suffer from monopoly level pricing for long if entry barriers prevent firms from entering into the market indefinitely, but along with this, it is also true that consumers will also suffer if decline in prices from increasing competition is delayed by delayed entry of new firms due to entry barriers. (Geroski, 1995)The first authoritative contribution in the area of discussion on entry barriers was made by Bain (1956). Bain made an attempt to define an entry barrier in cost of its effect on firms profitability. According to Bain if entry barriers exist in an industry then existing firms will be able to earn profits beyond their normal level without inducing other firms to make an entry into the market. Bain had argued that entry of new firms into an industry is determined by the level of advantages that the existing firm in the industry enjoys over the potential new entrants. He made a comparison between established firms profit prior to the entry of potential entrants and blot entry profit level of new entrants. According to Bain, there will be an entry barrier if an entrant fails to attain the profit level s that established firms utilize to enjoy before the arrival of

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