Final answer:
Before entering a market dominated by a monopolist and charging 10% less, consider competitive strategies the monopolist might use, like lowering prices, improving their product, or lobbying for regulations that could inhibit new entrants, potentially leading to a price war.
Step-by-step explanation:
When managing a small firm with intentions of entering a market currently dominated by a monopolist, it is vital to consider possible reactions from the monopolist to maintain their market dominance. Upon entering the market and charging 10% less than the monopolist, there is the possibility that the monopolist may engage in competitive strategies such as further lowering their prices to match or beat yours, improving their product quality, or increasing marketing efforts to retain their customer base. This could potentially lead to a price war, which may be unsustainable for a smaller firm. Additionally, the monopolist may have significant economies of scale that enable them to reduce costs per unit as output increases, making it difficult for new entrants to compete on price.
It is also possible that the monopolist may take legal or political action to hinder your firm's entry, such as lobbying for regulations that raise barriers to entry or challenging the legality of your business operations. Therefore, a thorough market analysis, consideration of the monopolist's potential strategies, and preparation for various competitive responses are crucial before entering the market.