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Chapter 9 entry and the advantage of incumbency
Reflection: incumbents dislike new entries for two reasons. One is successful entry implies that the incumbent’s share of industry profits must decline and second entry frequently lead to great competitive intensity within in the industry because competition usually increase as the number of firms in an industry increase. Entry can depress aggregate profits by making the industry more competitive and can reduce the share of industry profits the original firms retain. On the other hand, if barriers to entry exist, the incumbent firms might retain a substantial share of potential share of potential industry earnings over the long run. A study of entry barriers is therefore an essential part of industry analysis. Michael port 5 force theory, existing competitors, supplier, customer, new substitute, new entry. Entry barriers are conditions that make the industry less attractive to a potential entrant than it is to the incumbent firms. We will refer to entry barriers as incumbency advantage. This terminology emphasizes that an entry barrier gives a competitive advantage to an incumbent firm because it is an incumbent several types of incumbent advantage had been discussed. Sale advantage,( one of the most frequent cited entry barriers in the literature is economies of scale),incumbency advantage from cumulative investment, learning economies, innovation advantage, promotional advantage, incumbency advantage from customer loyalty, incumbency advantage from switching costs and demand side increasing returns, incumbency advantage from sunk cost, firm scope. Strategically creating incumbency advantage : packing the product space, blocking entry through contract or vertical integration, signaling to prevent entry,
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