Barriers to entry

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In economics, barriers to entry (also known as barrier to entry) refers to the things that makes it difficult for a firm or a person to enter a market.[1] These are called obstacles and makes it harder for a firm or a person to enter a market. Examples of barriers to entry include government regulation for firms and the need for a certain level of education for a person.

Barriers to entry helps to protect existing firms in the market from new firms entering a market and thus reduces competition in the market, which causes prices to be higher than what is accepted by society. Monopolies and market power is thus formed due to the existence of barriers to entry.

Definition[change | change source]

While the general definition of barriers to entry refers to the obstacles that makes it difficult for a firm or a person to enter a market, there are certain differences in the definitions given by economists as given below.

  • George Stigler defined barriers to entry as "A cost of producing which must be borne by a firm which seeks to enter an industry but is not borne by firms already in the industry."[2]
  • Franklin M. Fisher defined it as "anything that prevents entry when entry is socially beneficial."[3]
  • Joe S. Bain defined its as anything that allows incumbent firms to earn supernormal profits without threat of entry.[4]

References[change | change source]

  1. Sullivan, Arthur; Steven M. Sheffrin (2003). Economics: Principles in action. Upper Saddle River, New Jersey 07458: Pearson Prentice Hall. pp. 153. ISBN 0-13-063085-3. http://www.pearsonschool.com/index.cfm?locator=PSZ3R9&PMDbSiteId=2781&PMDbSolutionId=6724&PMDbCategoryId=&PMDbProgramId=12881&level=4.
  2. What Is a Barrier to Entry?. http://www.jstor.org/discover/10.2307/3592928?uid=3739256&uid=2&uid=4&sid=21102445136781. Retrieved 18 July 2015.
  3. http://www.mcafee.cc/Papers/PDF/Barriers2Entry.pdf
  4. Tirole, Jean (1989). The Theory of Industrial Organization. Cambridge, Massachusetts, London, England: The MIT Press. pp. 305. ISBN 0-262-20071-6.