DSpace at Khazar University

have strong relationships with their existing suppliers, which they are reluctant to break.
New entrants would have to persuade customers that it was worth their while incurring
these switching costs involved in moving to the product of a new entrant. This may
provide a strong barrier to entry.
- Capital costs of entry. If capital costs are high, this will limit the number of
potential entrants. Such costs include setting up production facilities, research and
development costs, establishing dealer networks and initial promotion expenses.
- High switching costs. If customers will incur high switching costs if they move
to a new entrant's product, this constitutes a barrier to entry. Thus, if IBM have a high
installed base in the mainframe computer market. This constitutes a very effective
barrier to the entry of other potential rivals, as winning orders against the supplier of the
installed base would require a really special advantage to overcome the switching costs
of changing computer systems.
- Government policy. Government policy may also provide a barrier to entry as
the government seeks to regulate the industry by restricting licenses, issuing exclusive
franchises, or establishing regulations that are onerous and costly to implement.
- Access to low-cost inputs Entry by potential competitors will be difficult without
such access. For example, low labor costs in the Far East have provided barriers to the
future development of textile industries in the developed world.
Bargaining power of buyers
Customers/buyers can have considerable bargaining power for a variety of
reasons. For example:
When there are few buyers, and they purchase in large quantities.
When the buyers have low switching costs, and therefore probably low
loyalty. Highly differentiated products offer less opportunity for the exercise
of buyer power than do relatively undifferentiated products.
When buyers face many relatively small sellers.
When the item being purchased is not an important one for the buyer, and
therefore he or she can take it or leave it.
When they have a lot of information concerning competitive offers, which
they can use for bargaining.
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