Explain 2 types of barriers to entry which can prevent potential competitors from entering an industry
Monopoly and oligopoly both are types of barriers to entry which can prevent potential competitors from entering an industry
A barrier to entry is anything that prevents entry when entry is socially beneficial
A monopoly possesses high barriers to entry. This deters other firms from entering the market and thus allows the monopoly to keep their status as a single seller of unique product. There are two types of barriers to entry that a monopoly may possess. This includes natural and man-made barriers to entry.
Natural barriers include economies of scales and high fixed costs. Economies of scales provide a cost advantage to firms that are pioneer in the industry, this allows them to grow in large size in that the firm has a monopoly control of the supplies and keep other firms will not be able to compete. High fixed costs is a method to prevent other firms entering the market, a monopoly has a economies of scales which are large in relation to the size of the market ,and the costs is lower than other potential competitors, this will cause a monopoly gain higher profit than other potential competitors. Besides , a monopoly has a greater financial capabilities in terms of start out capital, loan limits and budget allocation, this cause the firms can have high initial investment in latest technology like machineries and new production methods which will improve overall efficiency, this makes the existing firms more competitive in the market and gives them a structural advantage over potential rival firms. These affect the technology of other potential competitors is inefficiency and no more money to invest the technology. Limited market demand is a limited the quantity of demand, because people don’t want to buy all product which is excess supply, competitors should be compete the market sharing, if the firm has a high market sharing , it would gain...
Please join StudyMode to read the full document