Entry and Exit

Entry and Exit in Industries
 * Entry increases competition
 * Competition forces out inefficient firms
 * Entry and exit are highly correlated
 * Firms can affect entry barriers. Number, size, etc

Entry Decisions in and Barriers to Entry
 * Entrant can be new firm or established firm in another industry
 * Can be strategic or structured
 * Strategic is what incumbents do
 * Strategic blocking must be profitable for incumbent to do
 * Must change entrant's expectations, post-entry profits
 * Process innovation
 * Limit Pricing - setting a low price
 * Predatory Pricing - setting an extremely dangerously low self-damaging price
 * What these firms do is signalling. They can signal to entrants that they will take action and if the threat is credible enough the entrant will not enter with the incumbent doing nothing.
 * Incumbents can signal jam as in pretend to be threatening but entrant can always see through this logic.
 * Structured is natural advantages and intrinsic product characteristic or technology
 * Control of essential resources(natural resources, patents, etc)
 * Economies of scale and scope(cutting costs a lot)
 * Marketing advantages of incumbency(umbrella branding
 * Entry conditions are: Blockaded, Accommodated, Deterred
 * A new competitor entering the market reduces the incumbent's profits and market share so the incumbent has an incentive to keep the competitor out.
 * Compare post-entry profit and pre-entry profit for the incumbent. Have to take into account of efforts(cost) to of blocking entry in this comparison.
 * New entrant has to take into account of initial investment to get into the market. Want profits post-entry to cover the costs of investment to make entry worthwhile.
 * Entrants take into account of post-entry profit and competition
 * If Profit gained after entry >= Investment to get in then the new competitor will enter. If not then stay out.
 * Sometimes better to let the entrant in. If blockaded profit < Accommodated profit then let in. Blocking to make entrant stay out may be more expensive/costly than letting the entrant in.

Equilibrium Market Structure