Entry Prevention and Risk Avoidance | Objectives of Business


Entry Prevention and Risk Avoidance | Objectives of Business
Entry Prevention and Risk Avoidance | Objectives of Business


Entry Prevention and Risk Avoidance | Objectives of Business


Traditionally, profit maximization is considered the sole objective/goal of business(firm). But, economists suggest the goals and objectives that a firm can or should aim for. These other objectives are called alternative objectives.
Numerous objectives have been discussed here: Goals and objectives of a business.

Alternative Objective: Prevention of Entry and Avoiding Risk

Another alternative objective of the firm suggested by some economists is to prevent the entry of new firms in the industry. 

Managers often pursue the policies, which prevent new firms from entering the industry and help the firm maintain a constant share in the market. It appears quite necessary for managers to follow such policies. It acts as a barrier to entry for new firms. The firm also avoids taking any risk if the new entry of firms endangers its position in the market.

Although, the firm’s purpose in avoiding the risk and preventing entry is to maintain a constant share in the market and consequently maximize its profits in the long-run.

When barriers to entry fall, new firms come in the market, e.g.:
As barriers ..entry fall...more entrepreneurs take...plunge- CNBC

The possible motives behind entry- prevention are:


  1. Profit maximization in the long run
  2. Securing a constant market share
  3. Eliminating the risk caused by the unpredictable behavior of new firms.

 Arguments w.r.t to Entry Prevention and Risk Avoidance are:


  1. Whether firms maximize their profits in the long-run is not guaranteed. 
  2. Some economists argue that where management is separated from ownership, the possibility of profit maximization is reduced.
  3. The economists who support profit maximization objective argue that only profit-maximizing firms can survive in the long-run. They can achieve all other alternative goals easily once they maximize their profits.
  4. It is further argued that firm's motive behind pricing policies is to prevent the entry of the firm in the industry, particularly in case of limit pricing. Yet, the motive behind entry-prevention is to secure a constant share in the market. Securing constant market share is compatible with profit maximization.



image:pixabay

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