Barriers to entry

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In theories of competition in economics, barriers to entry, also known as barrier to entry, are obstacles that make it difficult to enter a given market.[1] The term can refer to hindrances a firm faces in trying to enter a market or industry—such as government regulation and patents, or a large, established firm taking advantage of economies of scale—or those an individual faces in trying to gain entrance to a profession—such as education or licensing requirements.

Because barriers to entry protect incumbent firms and restrict competition in a market, they can contribute to distortionary prices. The existence of monopolies or market power is often aided by barriers to entry.


George Stigler defined an entry barrier as "A cost of producing which must be borne by a firm which seeks to enter an industry but is not borne by firms already in the industry."[2]

Franklin M. Fisher gave the definition "anything that prevents entry when entry is socially beneficial."[3]

Joe S. Bain defined as a barrier to entry anything that allows incumbent firms to earn supernormal profits without threat of entry.[4]

Barriers to entry for firms into a market[edit]

Barriers to entry into markets for firms include:

Barriers to entry for individuals into the job market[edit]

Examples of barriers restricting individuals from entering a job market include educational, licensing, and quota limits on the number of people who can enter a certain profession.[citation needed]

Classification and examples[edit]

Michael Porter classifies the markets into four general cases:

The higher the barriers to entry and exit, the more prone a market tends to be a natural monopoly. The reverse is also true. The lower the barriers, the more likely the market will become perfect competition.

Barriers to entry and market structure[edit]

  1. Perfect competition: Zero barriers to entry.
  2. Monopolistic competition: Low barriers to entry.
  3. Oligopoly: High barriers to entry.
  4. Monopoly: Very High to Absolute barriers to entry.

See also[edit]


  1. ^ Sullivan, Arthur; Steven M. Sheffrin (2003). Economics: Principles in action. Upper Saddle River, New Jersey 07458: Pearson Prentice Hall. p. 153. ISBN 0-13-063085-3. 
  2. ^ "What Is a Barrier to Entry?". JSTOR 3592928. Retrieved 9 July 2013. 
  3. ^
  4. ^ Tirole, Jean (1989). The Theory of Industrial Organization. Cambridge, Massachusetts, London, England: The MIT Press. p. 305. ISBN 0-262-20071-6. 
  5. ^ a b c d Moffatt, Mike. (2008) The Market Power Theory of Advertising Economics Glossary - Terms Beginning with M. Accessed June 19, 2008.