Barriers to Entry - Meaning, Types, Classification, Examples of Barriers to enter different markets
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What are Barriers to Entry?
Barriers to entry are obstacles that deter a firm from joining a market. These can be licensing, start-up costs, patents, government regulations, and technology hurdles.
Barriers to entry help companies that already exist. They prevent rivals from entering a market.
They can thus impact prices. These have to be thought out while devising an anti-trust policy.
Barriers to entry can result in or contribute to monopolies and oligopolies. They give firms market power.
Types of Barriers to Entry
1. Agreements between Distributors
Specific agreements between leading retailers or distributors make it harder for other manufacturers to enter the industry. Thus, manufacturers have complete control towards the end of the supply chain.
2. Intellectual Property
Patents provide companies with the legal ability to prevent other companies from manufacturing a product for a select time. Trademarks might also be an entrance hurdle for any service or product. Most of the market is captured by one or more famous brands. Agreements between Suppliers.
3. Agreements between Suppliers
Special agreements with essential parts of the supply chain can make it hard for other manufacturers to enter the industry. An example would be suppliers launching exclusive kinds of products.
4. Switching Costs
Often, it becomes costly for consumers to change their providers. The goal of cost switching is to deter purchasers from switching suppliers.
5. Tariffs
Tariffs are majorly imported taxes that deter the entry of foreign players in a market. Tariffs are majorly put into place to protect the domestic markets that are nascent in the stage.
6. Zoning
Governments permit certain business activities in one place and ban others. This gives firms exclusive rights top operate in specific zones as marked by the government.
7. Economies of Scale
Advantages of price make the competition a high-stakes affairThis can prevent or hinder new entries in the market.
8. Government Restrictions
These involve orders from the government, enforced by law and overseen by the relevant authority.
It curtails the actions of those overseen by authority.
9. Marketing
Pre-existing companies can try and deter competition by investing in marketing. New entrants might not be able to spend as much or have enough workforce to counter.
10. Top-Down Integration
A firm overseeing multiple production levels can be a barrier to entry. The firm will only do things that give preference to itself at each level.
Rivals will have to function at each one of these levels to enter the market.
11. R&D
Incumbent firms will strategically invest in R&D. This creates a hurdle for new entrants.
It indicates an increase in industrial economies of scale, which makes the entrants lack of resources to enter the market.
12. Predatory Pricing
Some companies sell their products at a lower price bearing a loss, to deter competition.
Rivals might not be able to lose as much money as a pre-established company can. This is because big firms might have credit or cash reserves ready.
Multiple Rivals
If at a time, more rivals are entering the market, it is easier to enter a market.
The chances of a successful entry into a market where many competitors are trying and failing are, in fact, relatively low.
13. Technological Innovation
It can be hard to gain from economies of scale where high levels of technology are needed.
Speed to technological change can deter players from entering and settling in a new market
Barriers to Entry Classification
1. High Entry Barrier High Exit Barrier
2. High Entry Barrier Low Exit Barrier
3. Low Entry Barrier High Exit Barrier
4. Low Entry Barrier Low Exit Barrier
Barriers to Entry in Different Markets
The following markets have a combination of these features:
1. Markets with High Entry Barriers have Few Players and thus High-Profit Margins
2. Markets with Low Entry Barriers have Many Players and thus Low-Profit Margins
3. Markets with High Exit Barriers are not self-regulated thus Profits fluctuate
4. Markets with Low Exit Barriers are self-regulated thus Profits don’t fluctuate
5. Higher the Barriers to Entry and Exit, the Market would be a natural monopoly
6. Lower the Barriers to Entry and Exit, the Market would witness Perfect Competition
Barriers to Entry Examples
Starbucks
Walmart
This video is on Barriers to Entry and it has the following sub-topics.
Time Stamps
0:00 Barriers to Entry - Introduction
0:15 What are the Barriers to Entry?
0:44 Types of Barriers to Entry
3:30 Barriers to Entry Classification
3:52 Barriers to Entry in Different Markets
4:34 Barriers to Entry Examples
What are Barriers to Entry?
Barriers to entry are obstacles that deter a firm from joining a market. These can be licensing, start-up costs, patents, government regulations, and technology hurdles.
Barriers to entry help companies that already exist. They prevent rivals from entering a market.
They can thus impact prices. These have to be thought out while devising an anti-trust policy.
Barriers to entry can result in or contribute to monopolies and oligopolies. They give firms market power.
Types of Barriers to Entry
1. Agreements between Distributors
Specific agreements between leading retailers or distributors make it harder for other manufacturers to enter the industry. Thus, manufacturers have complete control towards the end of the supply chain.
2. Intellectual Property
Patents provide companies with the legal ability to prevent other companies from manufacturing a product for a select time. Trademarks might also be an entrance hurdle for any service or product. Most of the market is captured by one or more famous brands. Agreements between Suppliers.
3. Agreements between Suppliers
Special agreements with essential parts of the supply chain can make it hard for other manufacturers to enter the industry. An example would be suppliers launching exclusive kinds of products.
4. Switching Costs
Often, it becomes costly for consumers to change their providers. The goal of cost switching is to deter purchasers from switching suppliers.
5. Tariffs
Tariffs are majorly imported taxes that deter the entry of foreign players in a market. Tariffs are majorly put into place to protect the domestic markets that are nascent in the stage.
6. Zoning
Governments permit certain business activities in one place and ban others. This gives firms exclusive rights top operate in specific zones as marked by the government.
7. Economies of Scale
Advantages of price make the competition a high-stakes affairThis can prevent or hinder new entries in the market.
8. Government Restrictions
These involve orders from the government, enforced by law and overseen by the relevant authority.
It curtails the actions of those overseen by authority.
9. Marketing
Pre-existing companies can try and deter competition by investing in marketing. New entrants might not be able to spend as much or have enough workforce to counter.
10. Top-Down Integration
A firm overseeing multiple production levels can be a barrier to entry. The firm will only do things that give preference to itself at each level.
Rivals will have to function at each one of these levels to enter the market.
11. R&D
Incumbent firms will strategically invest in R&D. This creates a hurdle for new entrants.
It indicates an increase in industrial economies of scale, which makes the entrants lack of resources to enter the market.
12. Predatory Pricing
Some companies sell their products at a lower price bearing a loss, to deter competition.
Rivals might not be able to lose as much money as a pre-established company can. This is because big firms might have credit or cash reserves ready.
Multiple Rivals
If at a time, more rivals are entering the market, it is easier to enter a market.
The chances of a successful entry into a market where many competitors are trying and failing are, in fact, relatively low.
13. Technological Innovation
It can be hard to gain from economies of scale where high levels of technology are needed.
Speed to technological change can deter players from entering and settling in a new market
Barriers to Entry Classification
1. High Entry Barrier High Exit Barrier
2. High Entry Barrier Low Exit Barrier
3. Low Entry Barrier High Exit Barrier
4. Low Entry Barrier Low Exit Barrier
Barriers to Entry in Different Markets
The following markets have a combination of these features:
1. Markets with High Entry Barriers have Few Players and thus High-Profit Margins
2. Markets with Low Entry Barriers have Many Players and thus Low-Profit Margins
3. Markets with High Exit Barriers are not self-regulated thus Profits fluctuate
4. Markets with Low Exit Barriers are self-regulated thus Profits don’t fluctuate
5. Higher the Barriers to Entry and Exit, the Market would be a natural monopoly
6. Lower the Barriers to Entry and Exit, the Market would witness Perfect Competition
Barriers to Entry Examples
Starbucks
Walmart
This video is on Barriers to Entry and it has the following sub-topics.
Time Stamps
0:00 Barriers to Entry - Introduction
0:15 What are the Barriers to Entry?
0:44 Types of Barriers to Entry
3:30 Barriers to Entry Classification
3:52 Barriers to Entry in Different Markets
4:34 Barriers to Entry Examples
2 سال پیش
در تاریخ 1401/06/17 منتشر شده
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