Barriers To Entry

• What role do barriers to entry play in market structures?

  They determine long-run outcomes in markets
• What are barriers to entry (BTE)?

  Factors preventing firms from entering an industry
• How can barriers to entry be created?

  They can occur naturally or be deliberately created
• What are the types of barriers to entry (BTE)?

  1. Costs of entry
  2. Control of resources
  3. Restrictive practices
  4. Government-created barriers
• What is the impact of economies of scale on new entrants?

  New firms must produce at large scale to compete
• Why might new entrants face huge capital expenditures?

  To achieve the same average cost as existing firms
• How does vertical integration create a barrier to entry?

  It allows firms to reduce costs and limit competition
• What is a natural monopoly?

  When one firm can supply the entire market efficiently
• What are sunk costs?

  Costs that cannot be recovered after entry
• How do exit costs act as a barrier to entry?

  They deter firms from entering due to potential losses
• How can transferable capital equipment affect entry?

  It lowers exit costs, encouraging new firms
• What is brand loyalty?

  Customer preference for a specific brand
• How does brand loyalty create barriers to entry?

  It makes attracting customers costly for new entrants
• What is control of resources in the context of barriers to entry?

  Ownership of scarce resources by one firm
• How can a dominant firm reinforce its market position?

  By lowering prices to deter new entrants
• What are limit pricing and predatory pricing?

  Strategies to deter new entrants through pricing
• What is the purpose of patents?

  To protect inventors' ideas from being copied
• What does copyright protect?

  Self-expression in various creative works
• How do government licenses create barriers to entry?

  They grant exclusive rights to one firm
• How can government protection act as a barrier to entry?

  By restricting foreign competition through quotas
• What is preferential purchasing by the government?

  Buying exclusively from domestic firms
• What is the first mover advantage?

  Benefits gained by being first in a market
• Why might first mover advantages be temporary?

  Later entrants can innovate and compete effectively