Barriers to Entry

ENTRY BARRIERS
Barriers of entry is the term used in economics to describe the existence of highly start-up costs or other obstacles that prevent new competitors form easily entering an industry or area of business. Barriers to entry benefit existing firms because they protect their revenues and profits. Common barriers to entry include special tax benefit to existing firms, patents, strong brand identity or customer loyalty or high customer switching cost.

The following are the common definitions of primary economic barriers of entry:

a. Distributor agreement: Exclusive agreement with key distributor or retailor can make it difficult for other manufacturers to enter the industry.

b. Intellectual property: Potential entrant requires access to equally efficient production technology as the combined monopolist in order to freely enter the market. Trademarks and service marks may represent a kind entry barrier for a particular goods or service if the market is dominated by one or few well-known names.

c. Restrictive practices: Such as air transport agreements that make it difficult for new airline to obtain landing slots at some airports.

d. Suppliers agreements: Exclusive agreements with key links in the supply chain can make it difficult for other manufacturers to enter into the industry.

e. Switching barriers: At times, it may be difficult for customers to switch providers

f. Tariffs: Taxes or import prevents foreign firms from entering into domestic markets.

g. Zoning: Government allows certain economic activity in specified land areas but excludes others, allowing monopoly over the land needed.