Concentrated Markets & Threat of Entry

• What is a highly concentrated market characterized by?

  A few firms with large market shares
• How might existing firms respond to new entrants in an oligopoly?

  By increasing marketing budgets or using brand loyalty
• What strategy might existing firms use to deter new entrants based on economies of scale?

  Reduce prices to create a price war
• What are the possible responses from existing firms to deter new market entrants?

  • Increase marketing budget
  • Use brand loyalty
  • Exploit economies of scale
  • Reduce prices to create a price war
• What is the effect of a highly concentrated market on the threat of entry?

  It reduces the threat of entry from others
• Why might existing firms increase their marketing budget when new entrants appear?

  To make it difficult for new entrants to compete
• How does brand loyalty impact new entrants in a concentrated market?

  It makes it difficult for them to gain market share
• If existing firms reduce prices in response to new entrants, what might this lead to?

  A price war among competing firms
• What is the primary goal of existing firms when responding to new entrants?

  To deter other businesses from entering the market
• What are the implications of a highly concentrated market for new businesses?

  • High barriers to entry
  • Strong competition from established firms
  • Difficulty in gaining market share
  • Potential for aggressive pricing strategies