Question

Compare and contrast natural barriers to entry and government-created barriers to entry.

Answer 1

Barriers to entry are barriers which do not allow new firms or competitors to enter an already established market.

These barriers can be of two types: Natural barriers and governmental barriers

Natural barriers:

• Technological advancement or discovery
• Economies of scale
• Acquisition of competitors through buying shares

These are the natural barriers of entry which allow a firm to reduce their cost of production in such a way that no new firm would try to enter the market with the fear that they might not be able to offer such low prices

Governmental barriers:

• Getting exclusive ownership of a resource
• Patents
• Licences
• Franchising

These legal barriers provide the pre existing firms an undue advantage by either providing them exclusive ownership of a resource or not allowing new firms to enter by restricting issuing licences or franchises.

Thus, both types of barriers to entry have been discussed above.