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Chapter 14: Problem 6

A column on forbes.com discussed Google, Apple, Facebook, and Amazon, all of which operate in oligopolistic markets. The column argued that the concerns of some policymakers and economists about the market power of these firms may be overstated because "history teaches us that in a fast-moving industry, driven by fast-changing technologies, barriers to entry may be far less significant than one might believe." a. What does the columnist mean by "barriers to entry"? Name one barrier to entry a new firm would face in competing with: i. Google in online advertising ii. Apple in smartphones iii. Facebook in social media apps iv. Amazon in online retailing b. How might "fast-changing technology" reduce the importance of each barrier to entry that you identified in part a.?

Short Answer

Expert verified
The term 'barriers to entry' refers to obstacles that prevent new competitors from easily entering an industry or market. For specific companies like Google, Apple, Facebook, and Amazon, these barriers can range from control over resources, technological expertise, brand reputation, to logistical infrastructure. Technological advancements can potentially reduce these barriers by streamlining processes, reducing costs, and making information and resources more accessible.

Step by step solution

01

- Definition of Barriers to Entry

Barriers to entry are the obstacles that make it difficult for new competitors or firms to enter a particular market. These could be anything from high initial investment, control over resources, patents and licenses, brand reputation, to customer loyalty and switching costs.
02

- Identification of Barriers for Specific Companies

i. Google - Advertising platform: Dominance over search engines, data resources and complex algorithms. ii. Apple - Smartphones: Technological expertise, brand reputation, patents and high customer loyalty. iii. Facebook - Social Media Apps: Large user base, network effect, data control and brand reputation. iv. Amazon - Online Retailing: Wide product range, logistic infrastructure, user database, and brand reputation.
03

- Importance of Technology

Technology can lower barriers by reducing costs, simplifying processes or products, disrupting established business models, and accelerating the spread of information and resources.
04

- Connecting Technology with Identified Barriers

i. Google: New technologies might make it easier to collect and analyze data, construct efficient algorithms, and create competitive search platforms. ii. Apple: Advancements in smartphone technology and open source software can enable competitors to create competitive smartphones. iii. Facebook: New technology platforms can make it easier to develop social media apps and gain user bases. iv. Amazon: Improvement in supply chain technologies and online platforms can make it easier for new firms to start an online retail business.

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