Question

In XYZ city, the phone repairing business is monopolized by FixItToday Inc., which due to its accumulated experience and high business volume is able to reduce unit cost and offer a relatively low price. Which below are reasonable plans for a potential new entrant to crack into the market? (multiple answers are possible)

		A) A diversified new entrant can charge the same price (even if below average cost), and use internal capital market to fund its operation in the short run, hoping that overtime it can lower cost through learning and increasing market share
		B) The new entrant may enter with a new technology that provides greater perceived benefit (such as by quickening the service), so that the price premium it can charge is large enough to cover its higher cost
		C) If the market demand for phone fixing service is highly inelastic (we are smartphone addicts nowadays), the new entrant with better technology can substantially increase price due to its ability to offer service with higher perceived benefit than the incumbent monopoly; meanwhile, price drop by the low-cost incumbent will not draw away too many consumers

Answer 1

Solution :

Reasonable plans for a potential new entrant to crack into the market are :

B) The new entrant may enter with a new technology that provides the greater perceived benefit (such as by quickening the service) so that the price premium it can charge is large enough to cover its higher cost

C)If the market demand for phone fixing service is highly inelastic (we are smartphone addicts nowadays), the new entrant with better technology can substantially increase price due to its ability to offer service with higher perceived benefit than the incumbent monopoly; meanwhile, price drop by the low-cost incumbent will not draw away too many consumers.