ECONOMICS OF LEISURE

Economics Of Leisure



Economics of Leisure

Abstract

This essay is going to look at various barriers to competition available to firms specific to the leisure industry. This industry takes a very broad form and so cannot easily be defined. I am going to take it to mean anything to do with leisure from clothing and equipment to stadia and sponsorship. There are many different barriers but the usefulness of each of these to a firm will depend on the individual firms' market share.

Introduction

Oligopoly occurs when just a few firms between them share a large proportion of the industry. These firms will have access to a range of barriers to competition but the size of the barriers will vary from industry to industry. In some cases entry is relatively easy whereas in others, virtually impossible. Firstly, if an oligopolistic producer experiences significant economies of scale, the industry may not be able to support more producers. The scales of a plant or firm at which the lowest attainable unit costs are achieved are referred to as optimum scales. (Geroski, 2001, 90)

At point A, the long run average cost curve (LRAC) is at its minimum and hence this is the optimum output, Q*. Between 0 and Q* the producer is experiencing economies of scale and after Q*, diseconomies of scale. If another entrant should enter this industry, it will have one of four effects. (or a combination of some of them) Firstly, the entrant may enter at a small enough scale so that his entry will have no distinguishable effect on the prices or output of the established firm. Second, he may enter at larger scales at or near the optimum output - thus necessarily influencing either prices or outputs in the industry, and encounter a situation in which established firms lower their prices, rather than reducing their outputs, to allow the entrant a market share at going prices. Thirdly, with entry at or near optimum output, established firms may restrict output enough to allow the entrant a significant market share with unchanged prices. Lastly, the established firms may retaliate against the entrant by lowering their prices to prevent him from becoming set up in the market.

Discussion

In summary, the entrant into an industry where the optimum output of a firm is significantly large may ordinarily anticipate either higher than minimum attainable costs or a lower selling price than that prevailing in the industry before his entry, or both. If this is the case, the established firms will in general be able to elevate their prices at least somewhat above their minimum attainable average costs without attracting entry.

Another way of constructing a barrier to competition could be in the form of integration or merger. Two or more firms may decide to merge in order to increase their market share. This increase in market share may also have the effect of increasing economies of scale. A vertical merger is where firms in the same industry but at different stages ...