Barriers To Entry

AAA

DEFINITION of 'Barriers To Entry'

The existence of high start-up costs or other obstacles that prevent new competitors from easily entering an industry or area of business. Barriers to entry benefit existing companies already operating in an industry because they protect an established company's revenues and profits from being whittled away by new competitors.

INVESTOPEDIA EXPLAINS 'Barriers To Entry'

Barriers to entry can exist as a result of government intervention (industry regulation, legislative limitations on new firms, special tax benefits to existing firms, etc.), or they can occur naturally within the business world. Some naturally occurring barriers to entry could be technological patents or patents on business processes, a strong brand identity, strong customer loyalty or high customer switching costs.

RELATED TERMS
  1. Perfect Competition

    A market structure in which the following five criteria are met: ...
  2. Economies Of Scale

    The cost advantage that arises with increased output of a product. ...
  3. Porter's 5 Forces

    Named after Michael E. Porter, this model identifies and analyzes ...
  4. Brand Equity

    The value premium that a company realizes from a product with ...
  5. Patent

    A government license that gives the holder exclusive rights to ...
  6. Economic Moat

    The competitive advantage that one company has over other companies ...
RELATED FAQS
  1. What barriers to entry exist in the financial services sector?

    Barriers to entry in financial services markets include licensure laws, capital requirements, access to financing, regulatory ... Read Full Answer >>
Related Articles
  1. Economics

    Economics Basics

    Learn economics principles such as the relationship of supply and demand, elasticity, utility, and more!
  2. Professionals

    Advertising, Crocodiles And Moats

    Memorable advertising is a brick in the fortress that keeps competitors at bay.
  3. Markets

    Using Porter's 5 Forces To Analyze Stocks

    These five qualitative measures allow investors to draw conclusions about a corporation that are not apparent on the balance sheet.
  4. Personal Finance

    Antitrust Defined

    Check out the history and reasons behind antitrust laws, as well as the arguments over them.
  5. Active Trading

    Economic Moats: A Successful Company's Best Defense

    Find out why some companies thrive while others flounder.
  6. Economics

    What Is The Labor Market Conundrum?

    We are facing a conundrum with investment implications: Why are wages still stagnant, when jobs are being created at the fastest pace since the late 90's?
  7. Economics

    Understanding Impairment

    In finance and accounting, impairment refers to the loss of value of a company’s capital stock.
  8. Economics

    Understanding Perpetuity

    Perpetuity means without end. In finance, a perpetuity is a flow of money that will be received on a regular basis without a specified ending date.
  9. Economics

    What is a Promissory Note?

    A written promise by one party to pay another party a definite sum of money either on demand or at a specified future date.
  10. Savings

    How Microeconomics Affects Everyday Life

    Microeconomics is the study of how individuals and businesses make decisions to maximize satisfaction. Microeconomic principles can describe many everyday experiences. We use renting a New York ...

You May Also Like

Hot Definitions
  1. Asset Class

    A group of securities that exhibit similar characteristics, behave similarly in the marketplace, and are subject to the same ...
  2. Fiat Money

    Currency that a government has declared to be legal tender, but is not backed by a physical commodity. The value of fiat ...
  3. Interest Rate Risk

    The risk that an investment's value will change due to a change in the absolute level of interest rates, in the spread between ...
  4. Income Effect

    In the context of economic theory, the income effect is the change in an individual's or economy's income and how that change ...
  5. Price-To-Sales Ratio - PSR

    A valuation ratio that compares a company’s stock price to its revenues. The price-to-sales ratio is an indicator of the ...
  6. Hurdle Rate

    The minimum rate of return on a project or investment required by a manager or investor. In order to compensate for risk, ...
Trading Center