bargaining see BARTER, COLLECTIVE BARGAINING.
barometric forecasts see FORECASTING.
barometric price leader see PRICE LEADER.
barriers to entry an element of MARKET STRUCTURE that refers to obstacles in the way of potential newcomers to a MARKET. These obstacles operate in a number of ways to discourage entry:
(a) lower cost advantages to established firms, arising from the possession of substantial market shares and the realization of ECONOMIES OF LARGE SCALE production and distribution;
(b) strong consumer preferences for the products of established firms, resulting from PRODUCT DIFFERENTIATION activities;
(c) the control of essential raw materials, technology and market outlets by established firms, either through direct ownership or through PATENTS, FRANCHISES and EXCLUSIVE DEALING CONTRACTS;
(d) large capital outlays required by entrants to set up production and to cover losses during the initial entry phase.
The economic significance of barriers to entry lies in their capacity for blocking MARKET ENTRY, thereby allowing established firms to earn ABOVE NORMAL PROFIT and affecting the RESOURCE ALLOCATION function of markets.
One, or some combination, of the above factors may pose particular problems for a small-scale, GREENFIELD type of entrant. However, they may be of little consequence to a large conglomerate firm possessing ample financial resources that chooses to effect entry by MERGER with, or TAKEOVER of, an established producer. Moreover, the basic assumption of much entry theory – that established firms invariably possess advantages over potential entrants – must also be challenged. In a dynamic market situation, entrants may be in a position to introduce new technology ahead of existing firms or to develop innovative new products, thereby giving them COMPETITIVE ADVANTAGES over established firms.
For example, the introduction of FLEXIBLE MANUFACTURING SYSTEMS has enabled small entrant firms to secure similar cost advantages to their larger established rivals’ exploitation of economies of scale, while giving them greater adaptability to rapid changes in customers demands. Changes in distribution channels likewise have provided firms with entry opportunities. For example, E-COMMERCE on the INTERNET has enabled small firms to tap into markets at low cost and to sell their products at lower prices directly to customers than rivals using traditional wholesaler-retailer networks (see DIRECT SELLING/MARKETING). See also CONDITION OF ENTRY, LIMIT PRICING, POTENTIAL ENTRANT, OLIGOPOLY, MONOPOLY, MOBILITY BARRIERS.
barriers to exit elements of MARKET STRUCTURE that refer to obstacles in the way of a firm contemplating leaving a MARKET which serve to keep the firm in the market despite falling sales and profitability. Exit barriers include: whether the firm owns the assets it uses or leases them; whether assets are special-purpose or can be redeployed to other uses; whether assets are resaleable in second-hand markets; the extent of market excess capacity and the extent of shared production and distribution facilities. Barriers to exit determine the ease with which firms can leave declining markets and thus affect both the profitability of firms and the smooth functioning of markets.
Exit barriers can limit the incentives for a firm to leave a market even when the returns from producing are less than the potential earnings from the company’s assets in their next best alternative use. Exit barriers arise when a firm has contractual obligations that it must meet whether or not it ceases production: for example, long-term contracts to purchase raw materials and components; or large redundancy pay obligations; or the presence of specific assets (see ASSET SPECIFICITY). See PRODUCT LIFE CYCLE, PRICE SYSTEM, CONTESTABLE MARKET.
barriers to imitation see MOBILITY BARRIERS.
barter the EXCHANGE of one economic good or service for another. Barter as an exchange mechanism, however, suffers from a number of serious disadvantages:
(a) for barter to take place, there must be a ‘coincidence of wants’, that is, each party to the barter must be able to offer something that the other wants. For example, an apple-grower wishing to obtain oranges must not only find an orange-grower but must particularly find an orange-grower wishing to acquire apples. Finding appropriate exchange partners can involve lengthy search activity, which reduces the time available for actually producing goods;
(b) even if the parties meet up, they then have to agree on an appropriate ‘rate of exchange’, for example, how many apples are to be exchanged for one orange? Haggling over exchange terms is again time-consuming, and where agreement cannot be reached between the two parties each will then have to seek out new exchange partners.
Overall, barter is a very inefficient means of organizing transactions in an economy and has been largely superseded by the PRICE SYSTEM in modern economies, using money as a medium of exchange. See COUNTERTRADE, BLACK ECONOMY.
base rate the INTEREST RATE that is used by the COMMERCIAL BANKS to calculate rates of interest to be charged on bank loans and overdrafts to their customers. For example, a large company might be charged, say, an interest rate of base rate plus 2% on a loan, whereas a smaller borrower might be charged, say, base rate plus 4%. Formerly, base rates were linked directly to BANK RATE but are now fixed by reference to the ‘official’ rate of interest set by the MONETARY POLICY COMMITTEE of the Bank of England. See PRIME RATE.
base year the initial period from which a system of INDEXATION proceeds. For example, the present UK Consumer Price Index has as the base period 1996 = 100, with the average price of a typical basket of goods in 1996 being taken as the basis for the index. The 2004 index number was 111 for all items in the basket of goods. Convention dictates that the base period always commences from the number 100. See PRICE INDEX.
basing point price system a form of pricing products, such as cement, that are bulky and expensive to transport, which involves charging different prices to customers based in different locations. Customers located near to the supply source (or ‘base point’) are charged a lower delivery price compared to customers farther afield. See PRICE DISCRIMINATION, DELIVERED PRICE.
batch production the manufacture of a product in small quantities using labour-intensive methods of production (see LABOUR-INTENSIVE FIRM/INDUSTRY). Batch production is typically employed in industries where the product supplied is nonstandardized, with consumers demanding a wide variety of product-choice. Batch production industries are usually characterized by low levels of SELLER CONCENTRATION, easy entry conditions and high unit costs of supply. See PRODUCTION, MASS PRODUCTION, CONDITION OF ENTRY, FLEXIBLE MANUFACTURING SYSTEM.
bear a person who expects future prices in a STOCK EXCHANGE or COMMODITY MARKET to fall and who seeks to make money by selling shares or commodities. Compare BULL. See SPOT MARKET, FUTURES MARKET, BEAR MARKET.
bearer bonds FINANCIAL SECURITIES that are not registered under the name of a particular holder but where possession serves as proof of ownership. Such securities are popular in the American financial system but fairly rare in Britain, where the names of holders of STOCKS and SHARES are recorded in a company’s share register.
bear market a situation where the prices of FINANCIAL SECURITIES (stocks, shares, etc.) or COMMODITIES (tin, wheat, etc.) are tending to fall as a result of persistent selling and only limited buying. See SPECULATOR. Compare BULL MARKET.
beggar-my-neighbour policy a course of action that is entered into by a country unilaterally in pursuit of its own self interest in INTERNATIONAL TRADE even though this might adversely affect the position of other countries. For example, country A might decide to impose TARIFFS or EXCHANGE CONTROLS on imports from other countries in order to protect certain domestic industries. The great danger with this type of policy, however, is that it can be self-defeating; that is, other countries may retaliate by imposing tariffs, etc., of their own on country A’s exports, with the result that everybody’s exports suffer. To avoid confrontation