econs ans

(5/15/2008 01:20:00 AM)

Econs tutorial 14 :
ii) Explain one possible way in which BSC may have prevented the entry of another firm into market [2]
Suggest a method (1) and explain how it works in the context of the market for suger described in the text (1).
- Control of raw material supplies eg ownership of sugar beet plantations through backward integration -> prevent rival firms access to essential input or gaining cost advantage through purchase of raw material supplies at competitive price known as vertical price squeezing, where a vertically integrated firm charges competitors a high price for that input so that they cannot compete with it in selling the finished good.
- Predatory pricing policy :
By selling below cost to drive competitors from the market. This is possible if BSC cross-subsidize prices in a competitive market, thereby driving out competitors and establishing itself as a monopoly in that market. Cross-subsidize refers to the use of profits in one market to subsidize prices in another.

-ur dear econs rep.-