Barriers to Entry

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, since barriers will protect their revenues and profits from being whittled away by new competitors.

Notes:

Barriers to entry can exist as a result of government intervention (industry regulation, legislative limitations on new firms, special tax benefits to existing firms in the industry, 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 that is difficult for new competitors to effectively compete against, and strong customer loyalty or high customer switching costs.

See also: Brand Equity, Economic Moat, Economies of Scale, Patent, Perfect Competition, Porter's 5 Forces