Analysis Of Market Entry And Empirical Evidence On Classical Industry In China

The entry barriers are the barriers that new entrant should confronted. Entry barriers are usually grouped into three classes: Government Regulatory; Structural Barriers, which are exogenous and arise from basic characteristics of the industry, such as technology or demand; and Strategic Barriers, which arise from strategic action adopted by incumbents and tend to enhance the effects of the former. Using the Game Theory, we mainly study the firm's strategic behavior to deter entry. A strategic move, according to Schelling is"one that influence the other person's choice in a manner favorable to oneself by affecting the other person's expectation on how one's self will behave."Strategic interaction among firms occurs along several dimensions: capacity, pricing, product policy and R&D. Most of these involve substantial investments; the last represents largely irreversible commitments to the industry and are an integral part of the process of establishing the firms'relative positions in terms of market share, costs and products. In this respect, differences in the specific characteristics and the timing of entry put firms into asymmetrical positions with respect to investment. Such asymmetries frequently lead to first-mover advantages. First-movers are given opportunities for strategic behavior in deterring entrants.Strategic investment can be used to erect strategic barriers as well as for pre-emptive or predating purposes. Strategic barriers represent incumbent pre-entry activity intended to enhance the structural barriers faced by the entrants and thus further discourage entry. Credible incumbent threats of fighting the prospective entrant in the post-entry market can play this role. The credibility of such threats is enhanced if the incumbent hold excess capacity that could be utilized if entry occurred, especially if the incumbent holds a strong leading position in the post-entry market; if it has established a"reputation for toughness"by fighting previous entrant, or if it responds to entry with an aggressive investment program designed to deter continued growth and'mobility'of the entrant. Although there is little empirical support for the excess capacity entry-deterring argument, there is evidence that aggressive post-entry investment and pricing responses were common in concentrated markets of the four classical industry.Spence carefully analysed the extent to which an established firm facing a prospective entrant might make an investment in capacity beyond that which is optimal for its pre-entry output. He argued that entry is deterred in an industry when existing firms have enough capacity to make a new entrant unprofitable.