Live revision! Join us for our free exam revision livestreams Watch now

Topics

Strategic Barriers to Entry

Strategic barriers to entry refer to the actions that existing firms in a market can take to make it difficult for new firms to enter and compete.

These barriers are not necessarily illegal, but they can make it hard for new firms to enter a market, even if there are no legal barriers to entry.

Some examples of strategic barriers to entry include:

  1. Economies of scale: Large firms often have lower production costs than smaller firms due to their size and efficiency, which can make it difficult for new firms to compete on price.
  2. Brand recognition: Firms with well-established brands can make it difficult for new firms to enter a market because customers are more likely to trust and buy from a well-known brand.
  3. Network effects: Some products or services become more valuable as more people use them. For example, social media platforms like Facebook and LinkedIn have network effects because the more people use them, the more valuable they become to each individual user. This can make it difficult for new platforms to enter the market.
  4. Switching costs: When customers face a high cost to switch from one product or service to another, it makes it difficult for new firms to enter the market. This could be in the form of monetary costs, such as the cost of retraining employees, or non-monetary costs, such as loss of data.
  5. Government regulations: Government policies and regulations can also create strategic barriers to entry by giving an unfair advantage to existing firms. For example, subsidies, tax breaks, or other forms of government support can give existing firms a significant advantage over new firms.

It's important to note that these barriers are not illegal but they can make the market less competitive, reducing the incentive for existing firms to innovate and improve their products and services.

© 2002-2024 Tutor2u Limited. Company Reg no: 04489574. VAT reg no 816865400.