Question

In the growth stage of the market for an offering based on a new technology, what is the reasoning behind a strategy of preemption?

A. To enter the market before competitors
B. To establish relationships with incumbent firms
C. To secure ownership of scarce assets
D. To exploit switching costs and increasing returns to scale
E. To reduce rivalry, thus making price-based competition less likely

Answer 1

Preemptive strategies in the growth stage of a new technology market involve setting up barriers to entry, securing scarce resources, and capturing intellectual property to reduce competition and avoid price wars.

Step-by-step explanation:

In the growth stage of the market for an offering based on new technology, preemption refers to a strategy used to secure a competitive advantage by acting before rivals. This can include securing scarce resources, leveraging economies of scale, or obtaining intellectual property rights such as patents, trademarks, and trade secrets. By doing so, a company can set up barriers to entry, preventing competition from easily entering the same market space and potentially leading to a natural monopoly.

Preemption can lead to reduced market rivalry by making it harder for competitors to enter and compete effectively. In the absence of significant competition, the pre-emptive firm could avoid engaging in price-based competition, which can erode profit margins and lead to a price war. Thus, preemption can help maintain higher prices and profitability.

Predatory pricing, another strategy, involves temporary price cuts to discourage competition. However, this practice can be a violation of antitrust laws, indicating the risks associated with certain competitive strategies.