Barriers to Entry

Barriers to Entry

• Cost Barriers – in some markets the cost of setting up a firm to compete with the existing operators is too high

• Legal Barriers – in some markets it is possible to exclude competition legally. One way is to obtain a patent. A patent is a license that prevents firms copying the design of a new product or a new piece of technology. The new product developer can be the sole supplier in the market for a period of up to 10 years. This allows a firm to charge a higher price and recover the costs of research and development

• Economies of Scale – an established firm might dominate a market because it has grown and is now able to exploit economies of scale. As a result its average costs will be lower and it will have a cost advantage over any new entrant

• Marketing Barriers – monopolists often have strong brand names. This makes it difficult for new entrants to compete because their products will be unfamiliar and may not be trusted by consumers