Barriers to entry into a market come in many forms. which lists some of the usual barriers to entry?

These are blockages put in place that are designed to block potential entrants from entering a market profitably.

• Patents: A patent keeps an invention the property of the inventor for a number of years thus granting them the sole right to exclude others from making, using, or selling that invention.

• Limit-pricing: Firms may adopt predatory pricing policies by lowering prices to a level that would force any new entrants to operate at a loss.

• Cost advantages: This is when incumbent firm can lower costs, perhaps through experience of being in the market for some time, which allows them to cut prices and win price wars.

• Advertising and marketing: Developing consumer loyalty by establishing branded products can make successful entry into the market by new firms much more expensive. This is particularly important in markets such as cosmetics, confectionery and the motor car industry.

• Research and Development expenditure: Heavy spending on R&D can act as a strong deterrent to potential entrants to an industry. Most of the R&D expenditure goes towards developing new products but it also allows for firms to improve their production processes and reduce unit costs. This makes the existing firms more competitive in the market and gives them a structural advantage over potential rival firms.

• Presence of Sunk Costs: some industries have very high start-up costs or a high ratio of fixed to variable costs. Some of these costs might be unrecoverable if an entrant opts to leave the market. This acts as a disincentive to enter said market. When sunk costs are high, a market becomes less contestable. High sunk costs (including exit costs) act as a barrier to entry of new firms (they risk making huge losses if they decide to leave a market).

• International trade restrictions: Trade restrictions such as tariffs and quotas should also be considered as a barrier to the entry of international competition in protected domestic markets.

• Economies of Scale: allows large firms to enjoy low costs of production and therefore new firms operating on a smaller scale will find it hard to compete.

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