Process of Planning Entry

1. Attractiveness of new marker entry
   • Resources
   • Unhappy with the current business
2. Choice of market
3. Choice of entry type
4. Entry strategy

Choice of Market

1. Markets attractiveness
2. Entry barriers

Market Attractiveness

• Porter's Five Forces

  • Competition within the industry
  • Suppliers (Bargaining power)
  • Buyers(Bargaining power)
  • Potential new entrants(Entry barriers)(市場越是難以進入，意味著進入後收益更高，於是越有吸引力，但難以進入同樣是所要面對的問題。)
  • Substitutes(Impact on price elasticity)

• Government regulation, taxation

  • 在Porter's Five Forces之外但是與之共同考慮的重要影響因素。

Entry Barriers

• Factors that allow incumbent firms to earn positive economic prifots, while making it upporfitable for newcomers to entrer the industry

• Structural Entry Barriers

  • Nature of the industry
  • Position of the incumbent within the industry

• Strategic Entry Barriers

  • Incumbent's agressive action
  • Intended to keep the entrant out of the industry

Structural Entry Barriers

Control of essential resources

• Natural resources
  • DeBeers / diamonads
• Supplier capacity
  • Minnetonka / liquid soap
• Patents
  • Sony and Philips / CD
• Distribution channel
  • Coca Cola / fast food chains
• Location
  • Supermarkets / top locations
• Timing
  • Airlines / Arrival slots at airports（這裡太不懂）
• Rationing by governments
  • Cabs, mobile phone networks

Economies of scale and scope

• Minimum efficient scale
  • Semiconductor proudction
• Cost advantages of incumbents through expreience or economies of scope
  • Airframe production

Marketing advantages of incumbents

• Brand loyalty
  • Frequent flyer programmes
• Switching costs
  • Network markets such as mobile telephony

Strategic Entry Barriers

• The incumbent will consider deterring entry if

  • The incumbent earns highter profits (despite deterring) as monopolist than as duopolist (Be profitable)
  • The strategy changes the entrant's expectations about the nature of post-entry competition (Be successful)

• 是否deterring entry取決於預期收益：設獨佔收益率為p1，Block Entry策略使所有時間的收益率下降到p2（dettering entry是預防性的，全時間的），Accommodate Entry策略在Entry發生之前收益率為p1，之後的收益率為p3

  • "Cost" of dettering entry : (p1 - p2) * t
  • "Cost" of losing market share : (p1 - p3) * (t - t1)

看重短期收益則Accommdoate Entry，看重長期收益則Block Entry。

Entry Strategies

Commitment / Value Chain Reconfiguration

• COmmitment : A credible commitment of the entrant to stay in the market may stop incumbents retaliating

Type of commitment

• Hight sunk cost investments
  • Production capacity
  • R & D
  • Advertising
• Exit from other strategic market segments and fouces on entry

因為firms都是理智的，所以這裡的報復行動不是“情感需要”，而是威懾對手的進入和驅逐進入者以維護長遠利益。所以進入者可以通過Commitment來改變利益格局，使自己處於有必要進入市場並不論是否被報復都不會離開的局面（離開損失過大）。因為進入者不會離開，兩敗俱傷的報復行為就顯得不必要了。 (這是在一棵博弈樹上的過程）

Value Chain Reconfiguration

• Innovators enter the market with inferior products which appearl to price-sensitive buyers
• Incumbents ignore the threat since mainstream customers don't want those products
• Over tiem the products improve and take large chunks of the market from incumbents
• Market leaders can hardly respond because they find it difficult to replicate entrant's low-cost business models

judo Economics / Niche Market

judo Economics

• Entrant

  • Sets a price (pL) lower than the incumbent's price (pH)
  • Limits its capacity to serve a somall proportion (xE) of the market (x)
  • Signals the incumbent that it does not increase its capacity drastically in the future

• Incumbent

  • Loses some profits by giving market share (xE) to the entrant
  • Can exclude the entrant and fight back the whole market by setting its own price marginally lower than the entrant's one (pL)
  • Incurs (in the short run) losses through this price reduction (pH - pL)

• Incumbent does not attack the entrant if

  • pH * xE < (pH - pL) * x
  • left : Loss through accepting the entrant
  • right : Loss through attacking the entrant

• Factors influencing the success of the entrant

  • Market size / market of the incumbent (x)
  • Capacity / market share of the nentrant (xE)
  • pH - pL

Niche Market

• The entrant focuses on a niche market
• Across the board retaliation may not be feasible for incumbent

Entry Deterence

Structural Entry Barriers / Commitment

• Control of essential resources

  • Ensure exclusive access to resources
  • Secure more resources than is necessary for satisfying demand

• Economies of scale / scope

  • Lowercosts through larger scales
  • Leverage experience advantages
  • Increase technological lead

• Marketing advantages

  • Build brand loyalty
  • Raise switching costs for customers

• Commitment

  • Commit to an aggressive behaviour after entry
  • Eliminate those moves which lead to equilibria that are profitable for the entrant

Limit Pricing / Predatory Pricing

Limit Pricing

• Keep price low in spite of monopoly position

• Signal to the potential entrant

  • "low demand" (market may appear unattractive)
  • "low cost incumbent" (dangerous competitor)

• Works only in presence of incomplete information

Predatory Pricing

• Charging low prices (even below marginal costs) in the current competition

  • to induce exit (or marginalizing competitor)
  • to deter future entry

• Works only in presence of incomplete information*(對這一點不是很理解)*

Limit Pricing and Predatory Pricing are both Aggressive Pricing

Limit Pricing is before entry happen, predatory pricing is after entry has happened to try and drive existing competitors out of the market

Pre-Emption

• The incumbent can pre-empt an entry by
  • (Over-)investing to reduce variable costs of production below the level that would be optimal without htreat of entry
  • Pursuing horizontal product differentiation with greater product variety than would be opeimal without threat of entry
  • Choosing locations of outlets more densely than would be optimal without threat of entry