Discuss the barriers faced by firms wishing to enter an oligopolistic Essay

Discuss the barriers faced by firms regard to enter an oligopolistic market structure - Essay ExampleTherefore, sellers in the oligopoly atomic number 18 constantly aware of challenger actions and respond accordingly in order to discloseperform the small volume of competition existing in the market structure. Oligopolists regularly take into consideration the strategic responses of competition, attempting to model the close likely retaliation of strategic market participants in order to maintain competitive edge. Even though competition is intense among the market players, there is excessively considerable influence in the oligopoly to prevent new competitors from entering the market. The most common barriers for new market entry include pricing, product differentiation and consumer switching costs, as tumefy as intellectual property and patent laws. An explanation of barriers Firms operating in an oligopolistic market structure substantiate often achieved economies of ma ster, which are the specific cost advantages achieved by a firm due to its size and orbit of operations in which the cost of outputs continues to decrease whilst fixed costs are able to spread all over a higher volume of unit outputs (Gelles and Mitchell 1996). This is achieved through better operational efficiency and productivity that also improves variable costs along the production model. Over time, as the oligopolist achieves profit maximisation, the business is able to humiliated the cost of capital, especially as it pertains to asset procurement, thereby increasing production output whilst experiencing better cost efficiency. Economies of scale that have been achieved through continuous operation and success in sales in a market create barriers to new entrants, especially as it pertains to pricing. Businesses in the oligopoly are able to create predaceous pricing structures in an effort to undercut emerging competition attempting to enter the market. Because the business competitor has achieved economies of scale and winced the costs of capital, they are often equipped with the operational capacity to increase production without having to bring significant costs in this manufacturing effort. One should consider the beer industry, one that is currently dominated by major players such as Anheuser-Busch and MillerCoors which account for approximately 80 percent of the total market share in the international beer industry (New York Times 2009). If either of these oligopolists is aware that a new competitor is attempting to enter the market, hence providing competitive threat, these manufacturers are able to lower the prices of their selected products and sustain these low prices even though it would, in the short-term, reduce their quarterly profit expectations. New entrants, however, would have to invest considerable capital into the systems required to produce the product, reel the product and market it. Oftentimes, the new competitor must establ ish brand recognition (a costly trade objective) that requires, oftentimes, years of dedicated promotion in marketing simply to get consumers interested in the deglutition brand. Major players such as Anheuser-Busch can theoretically cut their prices by 50% on products that are homogenous in relation to the production output of the new competitor. Sustaining these prices in an effort to drive out the new competitor is relatively simplistic when economies of scale have been achieved. Why is this so important in determining barriers to new market entry in the oligopolistic market structure? The law of demand indicates that as a price decreases, consumer demand increases when all other factors remain stable (Boyes and Melvin 2007). Therefore, market characteristics