Lego Case

LEGO is benefiting from economies of scale to enjoy big cost advantage which they can benefit from low wages to reduce their production cost. The companies hire more than 7,000 employees around the world who are expertise to make the correct decisions and optimize their value chain. A new entrant to the market would not be able to take advantage of economies of scale because of their assumed limited expertise within production and limited resources.

The actors already in the toy industry is benefitting from a high brand equity, which they have created through several years on the market creating toys, which have been a part of society through generations.

Mattel created the Barbie doll in 1959 (Barbie Media) where parents of today were kids themselves and the doll have followed several generations who can remember the doll when they get kids themselves and of course they will buy one for their children. Since 1959 it is estimated that there have been sold more than 1 billion Barbie dolls (Sherman, 2009) this is an extremely tough brand to compete with. Companies like Hasbro and LEGO have similar stories with their product lines and it is hard to defeat brands who have sold continuously through decades.