Management MGT 100 Lecture Notes - Lecture 14: Sunk Costs, Switching Barriers

• School: WUSTL
• Department: Management
• Course: Management MGT 100
• Professor: Kiousis Konstantina

Document Summary

Savvy customers can force down prices by playing you and your rivals against one another. Powerful suppliers may constrain your profits if they charge higher prices. Aspiring entrants, armed with new capacity and hungry for market share, can ratchet up the investment required for you to stay in the game. New entrants to an industry bring new capacity and a desire to gain market share that puts pressure on prices, costs, and the rate of investment necessary to compete. Supply-side economies of scale: firms that produce at larger volumes enjoy lower costs per unit. Forces entrants to have large start up costs. Network effect: customer"s willingness to pay increases with the number of other buyers who also use the product. Customer switching costs: fixed costs buyers face when they change suppliers. Larger the switching cost, harder for entrant to gain customers. Capital requirements: the need to invest large financial resources to compete may deter new entrants.