Barriers To Entry

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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.

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  4. How do sunk costs create a barrier to entry for new firms?

    A sunk cost represents the investment a firm puts at risk when entering a market. This cost cannot be retrieved. The size ... Read Full Answer >>
  5. What do high economic profits in a given industry suggest about that industry?

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