Question

Q2) For the following industries: (i) Provision of rail services (ii) Bus production (iii) Provision of the rail infrastructure i Air services (v) Parcel markets Identify the main baiers to entry into each of these markets for a potential market entrant under the heading of structural and strategic barriers. Then place these industries on a scale, where 1 represents the industry with the lowest barriers to entry and 5 the industry with the highest. What does this tell you?

Answer 1

INDUSTRY	BARRIER	STRATEGIC/STRUCTURAL	SCALE
Provision of rail services	High set up cost including sunk cost Vertical integration	Structural Strategic	3
Bus production	Vertical integration Economies of large scale production	Strategic Strategic	2
Provision of rail infrastructure	High set up cost Ownership of Key resources High R & D cost	Structural Structural Structural	4
Air services	Ownership and control of key resources High set up cost High R & D cost Network effects Advertising	Structural Structural Structural Structural Strategic	5
Parcel markets	Advertising Network effect	Strategic Strategic	1

As the number barriers both strategic and structural increases, the potential entrants to the market will become more and more restricted. In the two types of barriers, the structural barriers which are natural barriers are more restricting factor than the strategic barriers which are made artificially.