Call Us: US - +1 845 478 5244 | UK - +44 20 7193 7850 | AUS - +61 2 8005 4826

water pollution standards and safety regulations

Timex did in the watch industry in the 1950s.

6. Government policy

The government can limit or even foreclose entry to industries with such controls as license requirements and limits on access to raw materials. Regulated industries like trucking, liquor retailing, and freight forwarding are noticeable examples; more subtle government restrictions operate in fields like ski-area development and coal mining. The government also can play a major indirect role by affecting entry barriers through controls such as air and water pollution standards and safety regulations.

The potential rival’s expectations about the reaction of existing competitors also will influence its decision on whether to enter. The company is likely to have second thoughts if incumbents have previously lashed out at new entrants or if:

  • The incumbents possess substantial resources to fight back, including excess cash and unused borrowing power, productive capacity, or clout with distribution channels and customers.
  • The incumbents seem likely to cut prices because of a desire to keep market shares or because of industrywide excess capacity.
  • Industry growth is slow, affecting its ability to absorb the new arrival and probably causing the financial performance of all the parties involved to decline.

Changing conditions

From a strategic standpoint there are two important additional points to note about the threat of entry.

First, it changes, of course, as these conditions change. The expiration of Polaroid’s basic patents on instant photography, for instance, greatly reduced its absolute cost entry barrier built by proprietary technology. It is not surprising that Kodak plunged into the market. Product differentiation in printing has all but disappeared. Conversely, in the auto industry economies of scale increased enormously with post-World War II automation and vertical integration—virtually stopping successful new entry.

Second, strategic decisions involving a large segment of an industry can have a major impact on the conditions determining the threat of entry. For example, the actions of many U.S. wine producers in the 1960s to step up product introductions, raise advertising levels, and expand distribution nationally surely strengthened the entry roadblocks by raising economies of scale and making access to distribution channels more difficult. Similarly, decisions by members of the recreational vehicle industry to vertically integrate in order to lower costs have greatly increased the economies of scale and raised the capital cost barriers.