Paper Topic:

What are barriers to entry? Describe the various types of barriers and explain how and why they are formed.

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In the theory of competition in the field of economics , barriers to entry refer to the obstacles that a firm faces in entering a certain market . Barriers to entry are made to block prospective competitors from entering a market valuably . These are designed to protect or secure the monopoly power of the present and existing firms in a market hence maintaining monopoly gains or profits in the long run . Barriers to entry are an incumbent firm 's source of pricing power since

it gives a firm such capability to raise or increase their prices without losing their customers . There are many forms of barriers to entry into market

One of the more known and important barriers to entry are government regulations . Through such regulations entry in one 's market may be more difficult or even impossible . There are other extreme cases where the government make competition unlawful hence creating a statutory monopoly in the country . This type of barrier can be in the form of permits licenses or tariffs that in turn raises the investment required in entering a market thus establishing an efficient barrier to entry

Another type of barrier to entry is marketing or advertising . By spending greatly on advertising that new firms find difficult to do present or incumbent firms , make it hard for new entrants to penetrate the market . Sunk cost , is another form of barrier to entry . Sunk costs are costs that a firm cannot recover once it...

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