In today's competitive market, it becomes difficult for firms to enter and be profitable. It has been established that with established barriers to entry a firm might have the possibility to set up a business and become profitable.
Describe 4 barriers to entry and explain how they can help a firm get the competitive edge.
Firstly, barrier to entry is defined as factors that make it difficult for new firms to enter an industry. Thus, if it is difficult to enter then less people will actually try to establish businesses in this market, thus competition is low. On the flip side, if there are no barriers to entry, anyone can establish a new business, which means that there will be high competition.
a) Economies of scale
The more products are produced, the cheaper the cost per unit becomes. For example, a firm making computer chips might enjoy an economy of scale. The more microprocessors they produce, the cheaper the unit price becomes. In essence, it is very hard to establish a NEW business that has economies of scale because the industry might not have ...
This posting looks at 4 elements: Economies of scale, Capital investment, Access to supply and demand channels and Learning curve and explains how it is related to barriers to entry, and how it can give a firm a competitive advantage.