Barriers to entry and exit

Question 1

Barriers to entry

Answer 1

any obstacle that prevents a new firm entering a market

Question 2

Lloyds TSB

Answer 2

• legal
• technical
• strategic
• brand loyalty

Question 3

Legal

Answer 3

• Patents
• Licences/Permits
• Red Tape
• Standards + regulations
• insurance

Question 4

Technical - industry specific barriers

Answer 4

• Startup costs
• Sunk costs – costs that can’t be recovered once firms has left market, eg advertising/ specialist machinery
• Economies of scale
• Natural monopoly

Question 5

Strategic: intimidatory tactics used by incumbent firms in that market

Answer 5

• Predatory pricing
• Limit pricing
• Heavy advertising

Question 6

Barriers to Exit

Answer 6

any obstacles that prevents a firm leaving a market

Question 7

Barriers to exit

Answer 7

• Undervaluation of assets
• Redundancy costs
• Penalties for leaving contracts early
• Sunk costs

All these could incentivize to continue for a bit more to not face these