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emphasize differentiation, and establish at least psychological switching costs for the
consumer if he or she is to move to a different brand. IBM has 100 per cent of the
market for IBM computers after all, and always will have!
- Cyclicality leading to periodic overcapacity. During these periods of spare
capacity, rivalry will be intense as firms fight to fill their factories.
- High corporate stakes in difficult times, the options are "fight or flight". If the
market is an important one to the main players in it they will be inclined to fight. This
will also be the case if exit costs are high, or if it is critical to gain a dominant position
early on in an emerging industry (e.g. VHS versus Betamax, Microsoft versus Apple's
Macintosh).
Barriers to entry
New firms enter an industry, they bring additional capacity. If demand not
increasing to absorb this additional capacity, then the new traits will have to compete
for a share of the existing demand. To. Entry they may either compete with lower prices
or with enhanced or both. The net effect of these new entrants will probably be to entry
the overall level of profitability in the industry. Entry is deterred the presence of barriers
to entry, which can stem from a number of sources. We have already considered some
of these barriers in our mission of immutability, but for completeness we set out the
barriers notified by Porter, as follows:
- Economies of scale. If there are major cost advantages to be gained from
operating at a large scale, then new entrants will either have to match that scale, or have
higher unit costs and suffer lower margins. Scale economies are usually thought of as a
production phenomenon, but may also exist in advertising, purchasing, R&D, after-sales
services and elsewhere.
- Experience benefits. Low unit costs can be achieved by accumulated learning:
that is, finding progressively more efficient ways of doing things, which, if they are
significant, would place inexperienced new entrants at a unit cost disadvantage?
- Access to know-how. Patents can protect firms from new entrants, and
difficulties in accessing process knowledge and particular skills can be substantial
barriers to entry.
- Customer brand loyalty. Customers may have preferred brands, or they may
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