Why Market Dominance Occurs
BARRIERS FOR ENTRY:
- Economies of Large Scale Production -> the cost advantages that a business can exploit by expanding the scale of production. The effect of economies of scale is to reduce the average (unit) costs of production.
- Ownership or Control of Key Resources -> owning a scarce resource which other firms could use cause a barrier to entry as the firm who owns or is in control of it will be better off than any other firm as they get that resource cheaper.
- Research and Development -> if a firm has a high expenditure on R&D (which mainly goes into product innovation or improving production efficiency) means that the exsisting firms are more competitive in the market and gives them an advantage over new and potential rivals
TAKE OVER OR MERGING
- This creates market dominance as a take over or merger (e.g Kraft and Cadbury) increases the market share as each of the firms market share combine to create an overall, larger, market share
FIRST IN THE MARKET
- This creates market dominance as it creates brand loyalty and the strength of the brand rather than the products themselves.
Maintaining Market Dominance
Developing consumer loyalty by establishing branded products can help maintain market dominance as it is expensive and can not be done by each firm as extensively. This is important in the motor and cosmetics industry.
This allows only the holder of this patent to produce the product to which it applies, thus creating a monopoly. This was used by DYSON
A firm may deliberately lower prices to force rivals out of the market
Lower costs, prehaps through experience in the market for some time, allows the exsisting monopolist to cut prices and win price wars