Question

Explain the difference between natural and strategic barriers of entry in an olgipoly, while listing examples for each?

Answer 1

There are factors that obstruct or restrict entry of new firms into market, called 'barriers of entry' in market.
Two types of barriers are there, 1) Strategic barriers, 2) natural barriers.

Strategic barriers refers to barriers that are created by authorities (government, industry, firm) to deter the potential entrants in market.
Strategic barriers are also known as artificial barriers as they are created by individuals itself.
Common examples of strategic barriers are as follows:
a) Determination of low prices, to distract competitors.
b) control over major share of market.
c) strength of few major brands.
d) contracts, licenses, and patents. etc.

Some of the barriers naturally exist in market structure, called natural barriers.
Competitors are discouraged by the characteristics of market structure itself.
they are also called structural barriers.
Examples of natural barriers are,
a) scarcity of key resources.
b) high set Up cost.
c) high research cost.
d) unpredictable market demand and supply.
e) large economies of scale production.