Question

For Crest toothpaste, could consumer lock-in or network externalities (or both) create a barrier to entry? Explain why or why not.

Answer 1

Consumer lock-in or vendor lock-in is caused when a consumer becomes dependent on a vendor for products and services and are unable to use another substitute without substantial switching costs . In case of tothpaste such is not possible . A toothpaste company usually does not have high franchising costs and there are many substitutes , so there is no barriers to entry .

Network externality is a positive externality which a buyer creates by increasing the value to other users . It may create a bandwagon effect . A positive feedback may create a high value effect for Crest toothpaste , thus limitting the possibility of other toothpaste companies to increase their value in the market . This maybe a cause for barrier to entry .