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Barrier to Entry

Definition

A barrier to entry refers to any obstacle or restriction that makes it difficult for new firms to enter a particular market. These barriers can include high startup costs, government regulations, patents, or exclusive access to key resources.

Analogy

Imagine you and your friends want to start a lemonade stand in your neighborhood. However, the local government requires you to obtain a special permit and pay a hefty fee before you can sell lemonade. This requirement acts as a barrier to entry because it makes it harder for new sellers (like you) to enter the lemonade market.

Related terms

Monopoly Power: Refers to the ability of a firm or group of firms to dominate and control an entire industry by limiting competition.

Oligopoly: Describes a market structure where only a few large firms dominate the industry and have significant control over prices and output.

Natural Barriers: Obstacles that arise due to the inherent characteristics of an industry or market, such as economies of scale or specialized knowledge required.