Barriers to entry

Barriers to entry are any circumstance that makes it less likely for a firm to enter a market. Some barriers are deliberately created by the behaviour of existing firms (the market incumbents). For example, an incumbent might deliberately restrict entry in the short run by dropping price to such a level that it is not commercially viable for a new competitor to compete. This would be considered an artificial barrier, and is referred to a ‘limit pricing’ as it is the price at which entry is limited. Other barriers arise as a result of the nature of the market or industry, such as the existence of economies of scale.

There are several types of barrier.