Barriers to entry

[1] Because barriers to entry protect incumbent firms and restrict competition in a market, they can contribute to distortionary prices and are therefore most important when discussing antitrust policy.

Barriers to entry often cause or aid the existence of monopolies and oligopolies, or give companies market power.

McAfee et al. criticized the phrase "is not borne" as being confusing and incomplete by implying that only current costs need be considered.

In 1981, Baumol and Willig gave the definition "An entry barrier is anything that requires an expenditure by a new entrant into an industry, but that imposes no equivalent cost upon an incumbent" In 1994, Dennis Carlton and Jeffrey Perloff gave the definition, "anything that prevents an entrepreneur from instantaneously creating a new firm in a market."

An article produced by Michael Porter in 2008 stated that new entrants to an industry have the desire to gain market share, and often substantial resources.

These scales arise when incumbents produce larger volumes of their product for a lower total cost.

This barrier discourages the entrant due to incumbent's embedded data and the structural adjustment programs made internally.

Companies often require a large amount of capital when starting to pay for fixed facilities but also produce their inventory and fund start-up losses.

Specifically, these are often regarding proprietary technology, preferential access to raw materials, favourable geographic locations, established brand identities and even cumulative experience.

The problem for entrants is that the more limited the wholesale and retail channels are, the more competitors have tied them up and consequently the more difficult entry into the industry will be.

Policies can heighten other entry barriers through patenting laws on technologies and even environmental and safety regulations that raise economies of scale for entrants.

A structural barrier to entry is a cost incurred by new entrants to a market that is caused by inherent industry conditions, such as upfront capital investment, economies of scale and network effects.

[4] For example, the cost to develop a factory and obtain the initial capital required for manufacturing can be seen as a structural barrier to entry.

A strategic barrier to entry is a cost incurred by new entrants that is artificially created or enhanced by existing firms.

[17] However, due to the low cost of the information in monopolistic competition, the barrier of entry is lower than in oligopolies or monopolies as new entrants come.

These competitive advantages could arise from economies of scale, but are also commonly associated with the excess capacity of capital held by incumbent firms,[19] which allows them to engage in temporarily loss-inducing behaviour to force any potential competitor out of the market.