barriers to entry

Question 1

what are barriers to entry

Answer 1

Barriers are obstacles which restrict comp making it harder, more expensive pr only possible in longer term to enter/leave market. This allows incumbent firms to make supernormal profits. Certain markets may be impossible to enter

Question 2

what is an incumbent firm

Answer 2

firm that’s been in the market for a long time

Question 3

what are the 3 ways barriers are caused

Answer 3

Barriers created by incumbent firms

Barriers created by an industry

Barriers created by gov policies and regulations (approval to enter an industry may need to be given)

Question 4

what are some barriers created by incumbent firms (2)

Answer 4

branding- products are so well-known to consumers. This familiarity makes the incumbent firms products consumer’s first choice

economies of scale- aggressive pricing strategies can be achieved by IF’s as it keeps their prices low to prevent smaller rivals from entering the market. these prices would deter firms from wanting to enter as there would not be able to compete in price wars