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

Discuss the barriers faced by firms wishing to enter an oligopolistic foodstuff structure - Essay ExampleTherefore, sellers in the oligopoly are evermore aware of competition actions and respond accordingly in order to outperform the small volume of competitor existing in the foodstuff structure. Oligopolists regularly post into consideration the strategic responses of competition, attempting to model the most likely retaliation of important commercialise participants in order to maintain competitive edge. Even though competition is intense between the mart players, there is also 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 monetary values, as well as intellectual property and patent laws. An explanation of barriers Firms operating in an oligopolistic market structure have often achieved economies of scale, which are the specific cost advantages achieved by a firm due to its size and scope of operations in which the cost of outputs continues to decrease whilst fixed costs are able to spread over a higher volume of unit outputs (Gelles and Mitchell 1996). This is achieved through better operational power and productivity that also improves variable costs along the production model. Over time, as the oligopolist achieves profit maximisation, the business is able to low 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 gross sales in a market create barriers to new entrants, especially as it pertains to pricing. Businesses in the oligopoly are able to create predatory pricing structures in an causal agency to undercut emerging competition attempting to enter the market. Because the business competitor has achieved ec onomies of scale and reduced the costs of capital, they are often equipped with the operational capacity to extend production without having to incur significant costs in this manufacturing move. One should consider the beer industry, one that is currently dominated by major players such as Anheuser-Busch and MillerCoors which accountancy for approximately 80 percent of the total market share in the international beer industry ( novel York Times 2009). If either of these oligopolists is aware that a new competitor is attempting to enter the market, thus 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, distribute the product and market it. Oftentimes, the new competitor must establish brand fruition (a costly marketing objective) that requires, oftentimes, years of dedicated promotion in marketing simply to get consumers interested in the beverage 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