The strategic creation of brand loyalty can be a barrier to entry – consumers will be less likely to buy the new entrant's product, as they have no experience of it.
Before its patent on aspartame expired, Monsanto engaged in preemptive deterrence when it signed contracts with its biggest customers, Coke and Pepsi.
[4] In both of these examples of strategic deterrence, prior action was taken by incumbents in order to reduce the probability of a subsequent entry by another firm into the market.
Economist Dr. William W. Sharkey established five key aspects that lead to a monopolized industry;[6] In a particular market an existing firm may be producing a monopoly level of output, and thereby making supernormal profits.
Limit pricing will only be an optimal strategy if the smaller profits made by the firm are still greater than those risked if a rival entered the market.
Signaling is possible here because entrants do not ever have all the information on profit margins of existing companies or the true matrix outcome.
When considering entering the market, an entrant must build an outcome matrix and rely on observable factors from the incumbent companies.
[8] This led to Virgin Atlantic chairman, Richard Branson, to say that competing with British Airways was "like getting into a bleeding competition with a blood bank.
[11] Predatory acquisitions commonly arise to form a new majority, and establish a greater voting power in order to effect a change.
Switching costs represent the expenses a consumer faces in the light of changing to the product or service to a competing firms.