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Question
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classmate assigment
1) The company that I have selected is United Parcel Service or more commonly known by its New York Stock Exchange "ticker" symbol - UPS. They are a leading member of the express delivery service industry. (first-research, 2018)
2) In an attempt to erect barriers to entry to the express delivery service industry, existing companies could utilize access to distribution channels. Established industry super giants like United Parcel Service and FedEx have existing relationships with the preferred distributors, making it a fairly simple task to construct a barrier between them and any new potential competitors. This can manifest into reality in the form of exclusivity agreements, binding contracts, enticing offers, and other incentives between the existing companies and the distributors.
Another way that existing companies could go about erecting barriers of entry into the express delivery service industry could be cost disadvantages independent of scale. For this particular industry, the subset of cost disadvantages independent of scale that existing companies would likely hone in on would be favorable locations. Warehousing product, vehicles, and employees is an underestimated expense and headache. This process in itself is a natural deterrent for prospective companies, now when it is combined with the realization that existing companies already possess the ideal locations, a barrier of entry is erected.
3) A new potential competitor attempting to lay siege to the barriers erected by existing companies in the express delivery service industry is not hopeless. First of all, these barriers are only obstacles for the potential competitor if that company had failed to do proper research before diving into the industry. However, if the new potential competitor is prepared prior to their launch they could avoid or maneuver around the barriers before them with ease and eloquence. Utilizing their existing relationships with distributors who they trust to join them on this new venture is likely to happen, along with preparing a larger budget for purchasing ideal locations. As long as the preparation work is thorough and satisfactory, there should be no barrier that stands in the way of a potential competitor.
thank you
Explanation / Answer
The market entry barriers can be created for combination of economies of scale with substantial market share to Limit competition. A Natural monopoly exploits such barriers to entry to limit competition to a few firms with abnormally high profits also failing to attract new firms due to such restriction. By creating economies of scale the service provider can serve the entire market more efficiently with optimisation of prophets as existing infrastructure available is difficult to duplicate by smaller providers as it may require large capital investment. This is accomplished by raising the quality of service and facilities to constantly meet all customer requirements, with continuous upgradation of services resulting in creation of a business model difficult to imitate or replicate for new entrants.
Another method for creating barriers to entry is predatory pricing which uses the threat of sharp price cuts by which competition is discouraged or faces imminent failure due to continuous unsustainable losses. large successful corporate United parcel service have the advantage of disposable capital efficient leverage to utilise plans advertising budget to discourage competition along with price cuts, as and when required.
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