ESSENTIALS OF ECONOMICS
11th Edition
ISBN: 9781260225334
Author: SCHILLER
Publisher: RENT MCG
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Question
Chapter 6, Problem 1QFD
To determine
The industries that can be highly competitive and barriers to entry in those industries.
Expert Solution & Answer
Explanation of Solution
Many industries can be regarded as being highly competitive in the market such as farming industries, the internet or computer industry, the food industry, taxi service sector. These industries face high competition due to undifferentiated products or commodities of the industry. Moreover, the industry rivalry can also be higher if consumer switching costs are low and brand loyalty is minimal. The following are highly competitive industries and they also have barriers to entry.
- Farming industry: Since no specialized skills are necessary to enter this industry, the farming industry is extremely competitive. But these kinds of industries have barriers to entry such as the cost of land, expenses on machinery, and chemical applications that make it difficult for newcomers to enter this market. Licensing fees for the cultivation of crops in specific regions also prevent new entrants in this industry.
- Computer and Internet industry: Internet service providers and the computer sector are highly competitive as everyone has a computer and internet access today and people shift from one brand to another that offers them better and fast services. But this industrial sector involves barriers to entry such as a bigger funding budget for research and development, the cost of obtaining a computer server, server management skills, and the expertise of server administration.
- Taxi service sector: A large number of taxi drivers in the market makes the taxi service sector competitive. But the requirement for taxi medallions only is obtained from current businesses or through a pricey legal process which makes it difficult for newcomers to enter this industry.
- Food industry: The food industry including restaurants, hotels, etc. is also competitive in today’s market but the barriers such as high start-up costs, location, economies of scale,
consumer behavior in the market, and state rules prevent new entrants to enter this industry.
Economics Concept Introduction
Introduction: Barriers to entry is an economic term that describes variables and challenges to make it difficult for new firms to enter a market or any industry. High levels of competition typically result in very low entry barriers which indicates that competition is unendingly high among these businesses.
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