The entry of a large number of new firms causes the market supply curve to shift to the right. As the supply curve shifts to the right, market prices begin to fall, and economic profits for both new and existing firms fall. Entry will continue to shift supply to the right as long as there are profits in the market.
When a new company enters your market, the variables that influence your company's performance change, and you must react to maintain your position. How the new company overcomes existing entry barriers can guide your strategic response to the new situation. As the market changes, you must consider the strengths of the new entrant when developing a strategy to retain your customers.
When a new buyer enters a market, suppliers can often raise prices due to increased demand. To offer the same types of products in the market, the new entrant requires the same materials and components that you do.You can keep your pricing structure and compete on quality and unique features if you can lock in your supplier costs with long-term contracts while the suppliers charge the new entrant higher prices. If your suppliers raise their prices, you can reduce your inventory and look for alternatives for the most expensive items.
The introduction of a new competitor into a market tends to lower market prices. When more companies compete for the same market share, customers prefer those with lower prices, and the overall price level falls. You can compete on price if you have inherent cost advantages due to factors such as location, product design, or low labor costs.
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