This is the extent to which there is liberty of entry or exit in a market that must have low non-recoverable (sunk costs). Sunk costs include expenditure on services such as advertising. The contestability of a market does not rely on the competitiveness of a market, but rather the lack of monopoly that ensures low prices. The contestability of a market makes it exhaustible as firms exit the market once profits are accrued.
Concentration index of a market
This is a measure of the size of the firms in relation to the total industrial field that the firm is a part of in a given region. A high concentration index is an indicator of few big firms in a low-competition industry. Conversely, a low concentration index depicts a highly competitive industry with relatively lesser magnitude than those in high concentration index industry. This is a measure of the level of monopoly within a market.
Structure-conduct performance paradigm
This is a theory to describe the relationship between the economic performances of a firm and the competition that it faces. It postulates that the economic performance relies on the relations between the market structure and the conduct of the buyers and the sellers. The market structure involves aspects such as hurdle to entry into a market and the concentration of sellers in the market (concentration index). In a case whereby there is perfect competition exclusive of barriers of entry into a market, not a single firm has the capability of controlling the pricing of goods and services. This makes the pricing of goods an unstable and uncontrollable variable. The high-concentration index industries with perfect competition (elimination of entry barriers) leave the few significant firms to control the pricing of goods and services at their discretion. Practically, the existing market structures are not perfect; however, workable markets are availed through controlled entry barriers and considerable seller concentrations.
Impact of Greenfield Investment entry mode of an MNC to the host country’s Market
Investment in new production facilities leads to the increased production and sales of the goods or products. This increased the availability of the product or service in the host country matching reducing its demand in the market. This only applies if the parent company of the MNC or any other TNC partook in importing such goods and services because then it would have just replaced the source of the goods and services. The Greenfield FDI can create a monopoly in a case whereby its production scale supersedes that of the incumbent’s producers of the same goods or services. The number of producers of the same products and services remain unchanged or reduced slightly in case the MNC does not exceed their production considerably.
Impact of Merger and Acquisition mode of entry to the host country’s market
An FDI through a merger and acquisition leaves the number of host producers and sellers or a service or a product relatively unchanged. The merger and acquisition FDI creates a way of assisting suffering local corporations to get back in track, and thus increase the production and sale of a product or service. However, an M & A can also result in the downsizing of the production of a firm or a company and its eventual closure. This will reduce the production of the product or service that the firm offered within the host country.
Relevant factors that affect the impact on the host country’s market
These include the prior importation of goods and services of that the entering MNC will provide on its establishment, the high production costs of goods and services within the host country and the state of the firms within the industry (they might be flourishing or dwindling).
Impact of entry of Mars and Nestle into UK ice-cream market
The entry of Mars into the UK market based on its transferrable brand image and loyalty from the chocolate bar industry led to the reduction of the concentration index of the ice-cream industry; thus, increasing competition. Nestle’ acquisition of Rowntree led to the increase of the concentration index of the industry; thus, reducing the completion.
Impact of Makro on the South Korean retail service market
The introduction of the Makro Store in Korea led to the decreased competition within the cash-and carry services in the country. The low costs of operation of the MNC allowed it to alter the pricing of its goods to its advantage (they lowered prices). This classic imperfect market structure allowed the conduct of the seller to change to increase its own economic performance.
Impact of entry of foreign banks into South African banking sector
The entry of foreign banks into the South African banking sector lad limited effect to the competition within the markets as the foreign banks centered on the unexplored areas thus bringing new services. The national banks were safe from the invasion after the wavering of the barriers to entry in 1994.
Anticompetitive activities an MNC can engage in on entry into a foreign country
Monopolizing mergers and acquisitions: This involves the expansion of market power by partaking in horizontal mergers.
Predatory behavior: this involves the expunging of rivals and new entrants out of the market through the perquisites a firm has like monopoly.
Exclusionary vertical practices: this involves the claim of advantages that reduce the operational costs of a firm in a market to have an advantage over a firm’s rivals.