So we’re discussing entry strategies, and let’s focus now on pre-entry strategies, strategies that could be used before entry occurs. And in particular, let’s talk about deterrence strategies to start off with. Now, deterrence strategies are ones in which you might increase the cost and risk of entry of your rivals. There's numerous ways that you can do this. One would be to erect structural barriers. Many cab companies have been trying to do this with respect to Uber to try to prevent Uber from entering into various geographic markets. This can be done through licenses, regulation. In the cab industry case, it's the use of medallions or a licensing system for cabs. You could also try to reduce the quality of information on costs and demand. That means existing competitors, making it unclear what the profitability is within a segment. It could also be ways of hiding what your underlying capabilities are, as a way to deter rivals from entering. And finally, you could think about retaliation strategies, ways in which a firm might have a reputation of having aggressive actions that they would take as a way to deter others from trying to compete directly with them. Basically saying, we're gonna enter into this opportunity, and we're gonna do so and fight for it in a way that's going to be unlucrative for others to follow us here. Things to think about, is there a large sunk investment? Are you all in, for example, within that industry? Have you established an aggressive reputation in the past, maybe through aggressive pricing behavior and the like? Do you have a capacity to incur debt? Think about Apple and their large cash position deciding to enter into a new market. They have an ability to say we're gonna be able to out-compete you no matter what because of the war chest that we've acquired over the years. You also want to think about ways to just simply reduce the incentive to enter here. One way to do this is to raise factor costs. Basically raise the cost of production necessary to compete in a market. When you look at something like the beer industry, one of the arguments for why there's so much advertising is not because it's informative, but it actually creates such a barrier to entry from other rivals trying to get into that market. There's also this idea of limit pricing, basically holding prices low as a deterrent to those coming in. Now, this type of strategy only works if the incumbent holds a true cost advantage. If you're trying to hold prices lower and you have actually high costs, this can be hard to do. Think back to the BSB/Sky TV case. BSB holding back on prices was unlikely to be a deterrent to Sky, since Sky actually had the cost advantage. If information about cost is poor, that also might deter entry, because the potential entrant might not really understand what your cost structure is and whether it's gonna be profitable for them to enter. This is sometimes referred to as signal jamming. Third thing to think about is the incumbent might have a long time horizon and entry becomes harder over time. So in other words, we're gonna out wait the rest of the market here. Again, having large cash reserves and the like might suggest that you'll be able to outlast rivals. Now, all of these types of activities, you need to be aware, in the US regulatory context, in the EU and others, these can be forms of predatory pricing, which is an illegal antitrust type of activity here, especially if you have a strong market position. So a strong incumbent who tries to engage in such pricing behavior open themselves up to liabilities. Less so if it's a smaller industry, nascent industry, smaller market position is that really a risk. So we've talked about deterrence. What about accommodating? Now, why would you ever wanna accommodate a rival? Well, you accommodate entry if deterrence is simply too costly or impossible. Again, BSB versus Sky TV, it was not clear a deterrence strategy would work. So perhaps a better strategy for BSB would be an accommodate strategy for Sky TV. So how can you take a position that will soften competition after entry? Well, differentiation is one. Maybe you differentiate your products. Maybe you segment the market on high quality and lower quality, mass market versus specialized market, all of that as a way to mute some of the eventual competition once additional entry occurs. You can also make commitments to limit your ability to compete aggressively. Ironically, things like best price clauses, where you'll meet the best prices of your rivals, could actually have an effect of keeping prices higher, because the rival knows if they lower their prices, it's not gonna accomplish anything, because you'll immediately cut your prices as well. So these mechanisms to accommodate those who are entering. Finally, you can organize to facilitate future coordination. Perhaps you form a trade association and invite in the various players within the industry to create the trust and the communication necessary to avoid the most highly rivalrous outcomes within an industry segment. So together, deterrence and accommodation are two strategies to use before entry occurs. We'll talk next about what you do once you've entered an industry.
