Barriers to entry

Question 1

What is meant by barriers to entry

Answer 1

Any obstacle that prevents a firm from entering the market

Question 2

What is meant by each letter in LTSB

Answer 2

Legal barriers to entry
Technical barriers to entry
Strategic barriers to entry
Brand loyalty barrier to entry

Question 3

Example of legal barriers to entry

Answer 3

Patents - Sole ownership of a product
Licences/Permits
Red tape - Lots of paperwork
Standards and regulations - regulations over minimum wages (Strict regulations may stop a firm from entering the market)

Question 4

What is meant by technical barriers to entry

Answer 4

Industry specific barriers to do with something in the industry

Question 5

Examples of technical barriers to entry

Answer 5

• High start up costs
• Sunk costs (costs which cant be recovered when a firm leaves the market) E.g Advertising and very specialists machinery
• Economies of scale e.g high economies of scale in the market for firms which means average cost is low will scare off competition
• Natural monopoly

Question 6

What is meant by strategic barriers to entry

Answer 6

Firms in the market already act in a threatening way

Question 7

Examples of Strategic barriers to entry

Answer 7

• Predatory pricing E.g pricing lower to drive out competition even if making a loss
• Limit pricing e.g Pricing at breakeven point
• Heavy advertising

Question 8

What is meant by barriers to exit

Answer 8

Any obstacle that prevents a firm leaving as market

Question 9

Examples of barriers to exit

Answer 9

• Under valuation of assets
• Redundancy costs e.g cost to workers
• Penalties for leaving contracts early e.g contracts with suppliers
• High Sunk costs