When a company is attacked, it may consider a response. Competitive behaviour is driven by awareness, motivation, and capability but the a generic reaction is decided by entry costs of the industry.
The cost to enter a market consists of cost to implement necessary capacities as well as ongoing operating costs.
There are three approaches:
- Exit the industry - if the entry cost is lower than that of incumbents, the incumbent should exit the industry
- Accommodate - if the entry costs are low, it is better to accommodate as the volume of (potential) new entrants is too high to make deterrence effective
- Deter - if the entry costs are significant but the company does not hold a monopolistic position, the company should deter competitors, for example by price cuts, improved value for money, etc.
If the entry costs are high enough, an entry to the industry is not possible, the company enjoys a monopoly.