potential entranta FIRM that is willing and able to enter a MARKET given the right conditions. In the THEORY OF MARKETS, potential entry turns into actual entry into a market when:
- existing firms in the market are earning ABOVE-NORMAL PROFITS;
- newcomers are able to overcome any BARRIERS TO ENTRY.
‘Actual’ new entry plays an important regulatory role in a market in removing above-normal profits and in expanding market supply (see, for example, PERFECT COMPETITION). However, the mere ‘threat’ of potential entry may in itself be sufficient to ensure that existing firms supply the market efficiently and set prices that are consistent with supply costs.
Potential entrants to a market may be newly established firms, firms that currently supply the market with inputs or that are currently its customers (vertical entry), or firms that currently operate in other markets and are looking to expand their activities in new directions (diversified entry). See also CONDITION OF ENTRY, MARKET ENTRY, VERTICAL INTEGRATION, DIVERSIFICATION, CONTESTABLE MARKET.