Which of the following factors does not stall the entry of other firms in oligopolistic industry ?

Question

Accepted Answer

The correct option is 4:
Increase in demand.

In an oligopolistic market structure, which is characterized by a few large firms dominating the industry, the key feature is the presence of significant barriers to entry that prevent new firms from easily joining the market. The question asks for the factor that does *not* stall entry. An increase in demand for the industry's product is a positive market signal; it signifies that more consumers want the product. Far from discouraging entry, an increase in demand generally makes the industry more attractive and profitable for potential new firms, thereby encouraging, rather than stalling, their entry. Therefore, increased demand acts as an *inducement* to entry, not a barrier.

The incorrect option is 1:
Huge advertising expenditure incurred by existing firms.
In an oligopoly, existing firms often spend large amounts on advertising and promotion to build strong brand loyalty and visibility. This huge expenditure acts as a formidable barrier to entry because new firms must also spend comparable amounts to compete effectively, requiring significant financial resources.

The incorrect option is 2:
Economies of scale.
Economies of scale mean that as a firm's output increases, its average cost of production decreases. Existing large oligopolistic firms often enjoy substantial economies of scale, allowing them to produce at a much lower cost than any new, smaller entrant. This cost disadvantage for newcomers serves as a major barrier to entry.

The incorrect option is 3:
Technology.
Proprietary technology, patents, or the sheer complexity and cost of the technology required in a specific industry (like aerospace or high-end chip manufacturing) can be a significant barrier. Existing firms often control the advanced or specialized technology, making it extremely difficult or expensive for new entrants to acquire or develop competitive production processes.