Notesale: Turn your study into money

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Barriers to Entry/ Exit
Barriers to entry: any obstacle that deters new firms from entering a market to compete with
existing firms
Incumbent firms: businesses already operating in the market
Limit pricing: monopolies set low prices to deter high cost entrants who cannot match price and
earn profit
Barriers limit the entry of new firms into an industry and isolate incumbents from competition,
increasing the incumbents market power (the ability to set price and earn supernormal profits in the
long run)
Barriers to entry

Barriers to exit

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high set up costs
- marketing to establish brand -> hard to gain sales from
incumbents
- the capital required
- incumbents use cross subsidies -> profits from other
markets enable limit pricing
- absence of economies of scale for entrants -> incumbents
use limit pricing to deter new entrants and predatory
pricing to force rivals out
legal barriers
- entry into a market is regulated, buses trains etx have
to be approved to meet particular standards ->
entrants need an operating license eg
...
Good for consumers in SR, not LR
incumbents can use EOS
- to have lower unit prices (purchasing EOS) than
entrants, can set lower/predatory prices to hinder new
competition
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expenditure on
advertising, research and
development, specialist capital
with no alternative use
Contracts – with penalty clauses
for ceasing operations, must
continue in industry until contract
expires to not risk being sued
...
Offices can be sold for
alternative use, IT systems etc

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