Assess the likely barriers to competition in the industries supplying leisure goods and services.

Essay by abeagsB-, March 2004

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This essay is going to look at various barriers to competition available to firms specific to the leisure industry. This industry takes a very broad form and so cannot easily be defined. I am going to take it to mean anything to do with leisure from clothing and equipment to stadia and sponsorship. There are many different barriers but the usefulness of each of these to a firm will depend on the individual firms' market share.

Oligopoly occurs when just a few firms between them share a large proportion of the industry. These firms will have access to a range of barriers to competition but the size of the barriers will vary from industry to industry. In some cases entry is relatively easy whereas in others, virtually impossible. Firstly, if an oligopolistic producer experiences significant economies of scale, the industry may not be able to support more producers. The scales of a plant or firm at which the lowest attainable unit costs are achieved are referred to as optimum scales.

(Geroski, 2001) This can be seen in Figure 1 below:

At point A, the long run average cost curve (LRAC) is at its minimum and hence this is the optimum output, Q*. Between 0 and Q* the producer is experiencing economies of scale and after Q*, diseconomies of scale. If another entrant should enter this industry, it will have one of four effects. (or a combination of some of them) Firstly, the entrant may enter at a small enough scale so that his entry will have no distinguishable effect on the prices or output of the established firm. Second, he may enter at larger scales - at or near the optimum output - thus necessarily influencing either prices or outputs in the industry, and encounter a situation in which established firms...