Barriers to entry and strongholds are not sustainable forever

Over the long run the result of most of these turf wars will be to heat up the competition in the strongholds both of the incumbent and of the orig­inal entrant. Both strongholds are eventually eroded and destroyed as safe havens. Often the two markets merge into one larger market.

Thus, we may tend to overestimate the strength of entry barriers, and in some cases we may have even invented barriers where none ever really existed. This myth of strong entry barriers is a barrier itself, like the screen in front of the wizard in The Wizard of Oz. But once the belief in entry barriers is eroded, it becomes apparent that many barriers are not so formi­dable as they appear. Even after they have eroded, their weakness may not be apparent until someone actually challenges them. Competitors assume that a barrier stands because it is unassailable when, in fact, it may be standing because it has gone unassailed. When a competitor attacks an entry barrier, it often falls away more easily than expected. Firms that thought it impossible to fight a well-established incumbent have often learned otherwise.

The Escalation Ladder in the Stronghold Creation/Invasion Arena

In summary, the erosion of safe havens occurs because of the escalation ladder shown in Figure 3-3. Both the incumbent and the entrant initially build barriers around their strongholds. The entrant launches a foray into the incumbent’s market with tactics designed to delay the incumbent’s response. Initially most incumbents respond by accommodating the en­trant. A few defend their turf fiercely. Eventually all incumbents respond to serious attacks by using the advantages inherent in the entry barriers that they have created. Entrants often overcome these barriers and take market share or trigger a price war in the incumbent’s market. The incum­bent then attacks the entrant’s home market. The battle over control of both markets usually escalates, sometimes with brief periods of standoffs. Thus, both strongholds erode, and the two merge into a single market­place.

Source: D’aveni Richard A. (1994), Hypercompetition, Free Press.

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