How do barriers to entry keep new entrants out of industry?
pohnpei397 | Certified Educator
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.