1.

Discuss the level of contestability in the market for consumer technology products such as
smartphones.

Economies of scale are huge barriers because companies like Apple and Samsung can
manufacture at a lower cost once they achieve large amounts of production. Apple generates
revenues because it sells a lot of iPhones across the globe, even at cheap prices in countries
like China. This is something the smaller companies or new businesses cannot do because
larger companies can produce items for such a low cost. Due to this fact, it makes it tough for
new companies to be able to compete with big firms. Secondly, to start a smartphone company,
a lot must be invested in building factories and finding suppliers, which again makes things even
tougher for the new companies. One other major reason is economies of scale would be a
major reason why new firms can barely put themselves into the market. Apple and Samsung are
very large and powerful, and it will be impossible for newer firms to compete unless something
unexpected happens in the phone industry.

Patents prevent new entrants from entering the market to sell their products. Patents will enable
companies such as Apple to prevent any firm from copying their invention. It shows how Apple
won the case against Samsung and was granted $1 billion because Samsung copied some of
their phone features from Apple, for instance, the scrolling feature in the phones. These patents
stops other companies from using the ideas of Apple and force the other companies to invent
something new. In my point of view, the patents are very eHective to keep new companies from
being able to get into the market. They help big companies, such as Apple, show a way to keep
on raking it in by protecting their technology. This influences many of the small businesses
trying to get their start-ups especially because most of them cannot aHord to deal with lawsuits
or make new technologies.

2. Discuss the level of contestability in the bike market?

The bike market has many obstacles that make it hard for new companies to start, and one big
obstacle is brand loyalty. Famous brands like Gazelle and Cannondale enjoy a good reputation,
which makes many customers choose to buy from them. According to the resource booklet, in
the Netherlands, one out of six bicycles sold is an e-bike, most of these from well-known
brands. This shows that people believe in these brands because they are good and dependable.
New companies that want to sell bikes need to spend a lot of money on ads to persuade
customers to choose their products, which can be very hard. I think brand loyalty makes it hard
for new companies to break in, but if they had something special or new, customers could still
go for them over the big name brands.

Another major issue that new businesses face involves sunk costs. These are costs incurred
which can never be recovered once spent. With the starting of a bicycle company, for example,
large funds are used in special equipment, factories, and marketing. Therefore, these initial
investments can be quite high, making the entry of new firms a little risky. The resource booklet
says that the e-bike market is growing, but the high costs can scare oH new competitors. Well-
known companies have already covered these costs and have loyal customers, so they can
keep their prices lower. My view is that even though sunk costs might discourage any new
entrants into the bike market, those that can find ways to minimize these costs or focus on
unique markets could still have a chance.
3. To what extent does the evidence suggest that the US car market is contestable?

One major problem in the US automobile market is the capital required for entry into the
business. According to the resource book, it has been mentioned, "Volkswagen spent an $3
billion building the new Tennessee factory and establishing the dealer network needed for
entering the market." That means a huge amount of capital is needed for its production, which
makes the entrance of new companies in the industry pretty hard. This makes it quite expensive
for a small enterprise to compete since big companies like Ford, GM, and Toyota dominate the
market. These high costs make it highly impossible for such a firm to be able to access the
market since it has financial support problems. The more this cost is minimised or another way
found to cover this cost, then more competition would happen. In my opinion, since the costs of
business start-ups are much higher this is really bad because this discourages innovations,
since not every new business will be able to bring in fresh ideas.

Another significant obstacle is advertisement expenses. The booklet relates that even Hyundai
and Kia struggled initially due to a lack of brand recognition but fighted by investing extensively
in marketing and making the good quality to compete eHectively in the US market. This may be
an important thing of being noticed in an already big market of brands. New firms have to incur
extensive costs in advertisements to establish their brand name, which provides a huge
advantage to existing companies. This is making the job of smaller firms competing in the
market a bit impossible as larger firms can spend more on ads. In this way, smaller firms find it
hard to attract customers. In my opinion, high reliance on advertising expenditure makes this
market less controllable because new firms will hardly be able to compete due to the inability to
arrange such an expensive budget. Therefore, it will lead to less competition with reduced
choices for the consumers, which is not desirable in the long run.

4. To what extent does the threat of competition aHect a firm’s behaviour? Answer either with
reference to the healthcare product industry or to an industry of your choice?

Competition forces companies to be cautious, especially in the healthcare product industry,

where established companies’ experience creates barriers for new entrants. New companies
often lack knowledge and expertise that older firms have. A clear example of this is RB with its
Gaviscon product. Because of their strong position, RB has been able to maintain a monopoly.
RB removed its original Gaviscon from the NHS database to prevent other companies from
selling a generic version once the patent expired. By doing this, RB delayed competition and
protected its market dominance, allowing it to earn significant profits. If generics had been
available, it could have saved the NHS millions. This raises ethical concerns and harms
consumers because prices remain high, and new competitors struggle to enter the market. It is
essential to have strict regulations in place to prevent companies from not using their position
and ensure that aHordable medicines are accessible to everyone.

Another key barrier to entry is licensing and legal requirements. Many governments impose
strict rules that companies must follow before entering certain industries. In healthcare,
companies need to meet stringent health and safety standards, which can be costly and time-
consuming. It is also pointed out that RB had a patent on Gaviscon Advance until the end of
2016, which prevented other companies from producing cheaper versions. This legal framework
forces competitors to either wait for patents to expire or navigate legal procedures. These entry
barriers have allowed RB to remain a leader without having to innovate or reduce prices,
benefiting from legal protection against competitors. Licensing, which is intended to protect
consumers, often only helps after a delay, keeping lower-cost options out of the market. The
government needs to find a balance in its competition policies, such as shortening patent
lengths, to lower prices and increase consumer choice.

5. To what extent might the contestability of the markets for online news and printed
newspapers diHer?

Switching costs are seen when consumers go through some diHiculties changing from one
product to the other. In the online news market, it's considered low as most of these websites
give free or cheap access, where it is indicated that there is low loyalty of the readers to the
source of reading, which would lead to making entry for newer platforms easy. Printed
newspapers: as mentioned above, people get used to buying specific brands, in this case, as
The Sun and The Telegraph. Online news markets: it is easier for new entries because it has a
low switching cost, however, subscriptions may be an issue as a barrier a little bit in the online
market. I think switching costs makes printed newspapers more diHicult to compete against
than online news, which has lower barriers to entry since switching is cheaper.

Limit pricing is the strategy where already established firms use relatively low prices to stop
entry. This works much easier in the printed newspaper market, as production costs are much
higher. Newspaper sales have declined over time. This would imply that companies may later
turn to use limit pricing to maintain their shares and make rivalry even harder for new firms. This
is the opposite of what happens in the online news market, where the cost of distribution is low,
and therefore one can provide the content for free or at low prices, financed by advertisements,
which for that reason limit the eHectiveness of limit pricing. Limit pricing in the printed
newspaper market is, in my opinion, the main barrier, furthermore, this factor is less important
in the online world, where the quality of content and user experience play a more important
role.

Danilo Z