Barriers To Entry
Barriers to Entry are factors that prevent new firms entering a market.
This is a key feature of Monopoly because without barriers to entry other firms would enter. Barriers to entry allow Monopolist to make Supernormal profit
Examples of Barriers To Entry
- Economies of Scale. Increased output leads to lower average costs. Therefore new firms will find it difficult of enter the market and compete effectively
A firm producing at Q2 has lower average costs, if a new firm enters its average costs would make it uncompetitive.
- Natural Barriers e.g. Zimbabwe has 85% of the world supply of Chromium.
- Brand Loyalty through Advertising. Developing consumer loyalty through establishing brand products can make successful entry into the market by new firms more expensive
- Limit Pricing or Predatory Pricing
- Vertical Integration. Control over supplies and distribution can be an effective way of increasing Monopoly power e.g. Oil companies and Brewers. E.g. if a new firm wants to enter the petrol retail market, it will have to buy petrol from one of the big oil companies, who can set a high price, thereby discouraging entry into the petrol market.
- Legal Patents
- Knowledge and Expertise gained from experience e.g. Microsoft
Essays and Revision Notes on Market Structure
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