Barriers To Entry In The PC Industry

Economies of scale: Large companies can produce products at a much lower cost than small ones because the cost per unit drops as the volume of output rises

Both potential and existing competitors influence average industry profitability. The threat of new entrants is usually based on the market entry barriers. They can take diverse forms and are used to prevent an influx of firms into an industry whenever profits, adjusted for the cost of capital, rise above zero. In contrast, entry barriers exist whenever it is difficult or not economically feasible for an outsider to replicate the incumbents’ position (Porter, 1980b; Sanderson, 1998) The most common forms of entry barriers, except intrinsic physical or legal obstacles, are as follows:

Threat of New Entrants - The easier it is for new companies to enter the industry, the more cutthroat competition there will be. Factors that can limit the threat of new entrants are known as barriers to entry. Some examples include:

The PC industry has started to develop fast in the 80 's when IBM launched its first PC series and later on when numerous small companies entered the market. PC is a new product and companies had to create the demand to it from the scratch.

customers lack a commercially viable alternative to Windows” (“Microsoft: Court’s Findings of Fact”). The barrier of entry would “prevent an aspiring entrant into the relevant market from drawing a significant number of customers away from a

The closest comparison to this small computer at the time was the Altair 8800 and the Intel microprocessors used in calculators and watches. An improved version of the Apple 1 developed into the Apple 11, the first personal computer with graphics and a keyboard, and IBM soon followed Apple’s lead with their version of a small computer. The market for personal computers had been primarily in the business industry. Apple Computer sales netted $50 million by the last quarter of 1979 (Gitman & McDaniel, 2009) and Apple soon became the personal computer of choice for many small businesses and families, especially when Apple introduced the more user- friendly Macintosh computer in the 1980’s. The Macintosh was Apple’s first major step in adapting the personal computer to the desires of corporate America. In ten years, Apple had grown from two employees in a garage to a $2 billion company with over 4000 employees (Jobs, 1985). What began as a hobby for Jobs and Wozniak soon became an essential part of many households and established the foundation for the Apple empire.

Entrants erode the market and rarely grow it enough to the incumbent’s advantage. New entrants have an impact on the industry business but at a moderate level. This is mainly because new firms will find it difficult to compete against the incumbents’ strong brand, like Starbucks and McDonalds, and because the market is saturated. However, the costs of entry are relatively low. Most of the raw materials are cheap and the distribution chain is not complicated. This makes it easy for new companies to enter the market. Also, established companies might leverage their brands as they enter the industry to compete against the incumbents.

The large capital requirements to enter the computer industry combined with established brand identities of the current incumbents make barriers to entry high, not to mention the economies of scale and distribution channels that incumbents enjoy which make entry barriers even higher. The current PC incumbents enjoy demand-side benefit of scale in the business sector where PC buyers prefer to buy products from large trusted companies, raising the level of entry barriers.

In the early 1980s the top competitor in this industry was IBM due to its open system and ease of being cloned. During this same time, Apple struggled to keep pace and changed its competitive strategy multiple times. From 1980 to 1993 Apple positioned itself in the computer industry as the company that provides easy to use desktops with superior software and hardware. Unlike its competitors, Apple did

Looking at the sizable market share Microsoft has come to enjoy over the years, a new competitor would face a number of entry barriers before entering this market. Customers are very loyal to the Microsoft brand and would expect any competitor to offer at the very least the same features that Microsoft already has.

Threat of New Entrants – The threat of new competitors entering an industry is high when initial

“Economies of scale are unit cost reductions associated with a large scale of output” as it is able to spread over the fixed costs over a large volume of quantity (Wickramasekera, Cronk & Hill 2013 p90). “First-mover advantages are the economic and strategic advantages that accrue to early entrants into an industry and the ability to capture scale economies ahead of later

In this case some big companies dominate the whole industry and as a result the small companies

If an industry is profitable, it will become a magnet to attract more competitors looking to do same business with us. If it is easy for these new entrants to enter the market, this poses a threat to the firms already competing in that market. Threat of new entrants is one of the forces that shape the competitive structure of an industry (Marc, 2014). A high threat of entry means new competitors are attracted by the profits of the industry and can enter the industry easily. New competitors entering the marketplace can make the market share and profitability of existing competitors more threaten cause the existing competitor to make some changes to existing product quality or price levels. A high threat of new entrance can make an industry more competitive and decrease profit potential for existing competitors whereas a low high threat of new entrance can make an industry less competitive and increases profit potential for the existing

But even though the entry for small players could be easy, the entry for a large firm is not that easy. A high technical expertise is must for a new entry. The brand image of the large players who are most like acquire and retain customers also act as a barrier.