What is the role of timing in deciding to enter or exit a market? Firms decide to enter a market based on current and historical information, but time lags can change the economic environment. What are the risks a firm faces in deciding to enter or exit a market? Again, use examples from current economic events or events. Apply your statements to these events.
Timing is an essential factor in making entrance and exit market decisions; this is due to the fact that profitable markets that yield high returns will draw firms while constant losses prompts firms to pursue exit strategies. Consequently, a firm needs to monitor industry trends to enter and exit at a time advantageous to their operations (when profits are expected.) Entrance and exit decisions require evaluating several factors that determine both the risk of new entrants and potential reasons to exit a market. These include economies of scale, product differentiation, capital requirements, access to distribution channels and cost disadvantages independent of scale.
Economies of scale reduce the per-unit cost of a product as the number of units being produced increases. This is a common barrier in larger industries--. If a new competitor wanted these markets, the company would have to enter the market producing a large quantity at the same low price as competitors or the company would have to compete with a cost disadvantage and little chance at being profitable. Because economies of scale exist in the industry, it deters smaller competitors from entering into the market while encouraging competitors that cannot produce an acceptable quantity to exit the market. This is true for the soybean industry which maintains an oligopoly market structure with Mosanto setting a production standard that smaller firms are unable to emulate.
In addition to economy of scale, product differentiation is another entrance/ exit factor in any major industry. There are many...
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