Constraints on Expansion

Anything that prevents competitors from increasing their capacities in an industry. These can be legal constraints, such as patents, or low profit potential, or substitute products, or satisfied customers who are unwilling to change suppliers.

Example 1:

Many manufacturers are keeping competitors out of their service markets by following restrictive policies, such as refusing to sell them parts or supplies.
(Year 1994-SIC 7600)

Explanation: If the would-be competitors cannot obtain the parts or supplies to service the manufacturers' product, they cannot expand into those markets. This is a Constraint on their Expansion.

Example 2:

Juniper makes a router fast enough to eliminate data bottlenecks on the net. The firm has 13% of the high-end router market, cutting Cisco's pricing power.
(Year 2000-SIC 3576)

Explanation: The existence of Juniper as a substitute product constrains Cisco's freedom to price as it would like and expand with impunity at that price. Juniper is a Constraint on Cisco's Expansion.

Example 3:

In addition to customer size, competitors in the cement industry focus on geographical customer groups. A plant and distribution terminal can only serve customers within a 300-mile radius due to the prohibitively high cost of shipping cement by land.
(Year 1991- SIC 3241)

Explanation: A cement plant must be structured to fit the market within a 300-mile radius. It is a Constraint on its Expansion beyond that geographical area because of the cost of shipping cement.

Example 4:

About 10% – 15% of the world's gold mining could be postponed if prices stay at current levels for a sustained period.
(Year 1997-SIC 1040)

Explanation: Ten to fifteen percent of the current gold mining production has operating costs below the current prices. If these prices remain at low levels, production is likely to be suspended. The high costs of these mines and low price in the marketplace are Constraints on Expansion in the industry.

Example 5:

Insurance companies have been steadily consolidating. They're trying to carve out profitable niches for themselves while broadening their offerings. The multiplicity of state insurance laws has made for a product development quagmire. Statutes that had limited competition from non-insurers are falling by the wayside.
(Year 1996-SIC 1011)

Explanation: State insurance laws limit competition by Constraining Expansion through regulations and certification requirements.