Barriers to Entry
What are market entry barriers?
Market entry barriers can take on a variety of forms, including natural and artificial obstacles. Natural barriers are those that are inherent in the market and can include high research and development costs, while artificial barriers may be imposed by dominant market players or governments. Examples of entry barriers include sunk costs, legal and regulatory impediments, economies of scale or scope, capital expenses, network effects, exit obstacles, vertical integration strategies like predatory pricing or limit pricing strategies such as fidelity rebates or bundled discounts and exclusive dealing arrangements. In order to create a competitive environment in a free market setting state intervention may be required to reduce these entry barriers. The definition of entry barriers should be dynamic and based on the current situation in the marketplace.