Barriers to Entry/Exit

• Barriers to entry


  Obstacles that prevent a new firm entering a market
• Types of barriers to entry

  • Legal barriers
  • Technical barriers
  • Strategic barriers
  • Brand loyalty
• Legal barriers to entry


  • Patents
  • Licenses and permits
  • Red tape
  • Excessive standards
  • Excessive regulations
  • Need for certain insurance
• Technical barriers to entry

  • High startup costs
  • High sunk costs
  • Economies of scale
  • Natural monopoly
• Strategic barriers to entry

  • Predatory pricing
  • Limit pricing
  • Heavy advertising
• Brand loyalty


  Consumers are very loyal to different businesses, making it difficult for new firms to compete
• Barriers to exit


  Obstacles that prevent a firm leaving a market
• Barriers to exit


  • Undervaluation of assets
  • Redundancy costs
  • Penalties for leaving contracts early
  • High sunk costs
• Barriers to entry and barriers to exit are sources of monopoly power