Saturday

Barriers to Entry

Barriers to entry: the technical or economic factors preventing firms from entering an industry and competing with existing firms
Barriers to entry in transport include
i Legal monopoly eg a eg Train Operating Companies have been given a regional monopolies with a time-limited franchise by law
i Vertical integration: where by acquiring suppliers or distributors a firm can exclude rivals from a producing a product or supplying a market
i Predatory pricing where established firms lower price to force competitors into losses and so force their withdrawal from industry eg Laker Airway’s Skytrain no frills transatlantic route
i Economies of scale. Initially, new entrants with low output cannot enjoy the same economies of scale and low unit costs of established firms
i Large potential sunk costs deter new entrants from risking entry
i Branding establishes products as unique. New entrants require expensive advertising to establish sales deters entrants
Monopolists sustain abnormal profits by blocking potential entrants. Barriers to entry largely determine the degree of competition in a market.

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