1.

3 Explain types of barriers to entry that prevents a business from entering a market and
competing with other businesses

Tenaga Nasional Berhad abbreviated as TNB or also known as Tenaga Nasional is the
only electric utility company in Peninsular Malaysia. At the same time, it is the largest publicly-
listed power company in Southeast Asia. It is one of the monopoly firm in the Malaysia. The
company remains as the only direct electricity supplier to the consumer, because it will require a
company to invest a huge amount of capital to start such a monopoly business as TNB will. A
huge capital is needed primarily for the start-up of megawatt high-electric power plants.

First and foremost, legal barriers to entry of patents and licenses own by TNB prevent or
completely block potential entrants from entering the market to compete with existing monopoly
firms. The government have only give TNB license to operate and run the business. Since the
government undertakes the rule and regulation to remain TNB as the monopoly firm in the
market, it is benefit for consumer for having just one company to supply electricity cause it will
help maintain a healthy market.

The second barrier to entry is economies of scale. By assuming if there are two
companies supplying electricity in Malaysia TNB and Orkid Electricity Berhad; consumer will
definitely make a decision based on which company can offer a cheaper price. Furthermore,
number of power plants will increase in the country, which will lead to the increase of
transmission towers, what’s worse is how will they direct the cables to each household who
chooses different suppliers. In order to resolve these problems, the government have given the
license to only TNB to operate this business. TNB enjoy economies of scale by producing at a
higher output with a lower cost compared to new firms just starting up in the industry. It makes
entry of new firms unattractive and impossible to enter for new entrants.

Moreover, TNB can play as monopoly role in the market because TNB has managed to
control important input. TNB has ownership of the scarce raw materials. Therefore, other
companies have no access to the scarce resource to generate the product. In other words, TNB
have complete control over the industry due to TNB have access to coal which is the cheapest
raw material used to generate electricity here in Malaysia. In this industry, a single firm should
be existed to keep the production cost from rising, if there were more than one firm in this
industry it will contribute to a higher price in coal. Then the coal supplier will sell the coal at a
higher price, because coal is a scarce resource by selling it at a higher price will contribute to the
increase of production cost.