How do barriers to entry keep new entrants out of industry?

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pohnpei397 | College Teacher | (Level 3) Distinguished Educator

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Barriers to entry can do this in a number of ways.  A few of them are:

  • Economies of scale keep new entrants out because they give an advantage to large firms.  If there are economies of scale in a market, a new firm will be unable to compete because it is not likely to be able to start out as a big firm.
  • Product differentiation can mean that there is no room in the market for new products because people are loyal to established ones.  It is, for example, hard for a new car brand to break into a market because people will not trust it and will tend to stick with their old brand.
  • Government regulations might simply prohibit entry into a new market.

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