Free entry

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In economics, free entry is a condition in which firms can freely enter the market for an economic good by establishing production and beginning to sell the product.

Free entry is implied by the perfect competition assumption that there are an unlimited number of buyers and sellers in a market. In conditions in which there is not a natural monopoly caused by unlimited economies of scale, free entry prevents any existing firm from maintaining a monopoly, which would restrict output and charge a higher price than a multi-firm market would.

Free entry is usually accompanied by free exit, under which condition firms that are incurring losses (such as would happen if there are too many firms producing the product so that each is producing too little to be at its minimum efficient scale) can readily leave the market.

Barriers to entry[edit]

Numerous barriers to entry could exist that restrict free entry:

See also[edit]

References[edit]

N. Gregory Mankiw, Principles of Economics. Fort Worth: Harcourt, 2001.