An economic factor that makes it difficult for a business to enter a market and compete with existing suppliers.

"Strictly speaking, a barrier to entry is a condition that makes the long-run costs of a new entrant into a market higher than the long-run costs of the existing firms in the market; a good example is a regulatory limitation on entry. The term is also used, more questionably, as a synonym for heavy start-up costs."
  - Richard A. Posner, Economic Analysis of Law, 10.8, at 227

Also created by established businesses by introducing unncessary services/products that consumers come to expect from that market - in hope of removing future competition.

Lavish shops for example. Not many startups can compete with a bank's floorground of today. But 200 years ago any shack would be an acceptable bank; Barrier to entry.

Whether these are genuine evolutionary steps in a market or an active effort to kill off competition... well, we'll leave up to your paranoia.

A barrier to entry is something which makes it hard for a new business to enter a market. A market with many barriers to entry is said to be non-contestable. We'll start off by considering different types of barriers to entry, and then their effects in general.

One of the biggest barriers to entry is branding. Brands to which people are loyal and that they trust are a formidable opponent for a new company to face. Existing companies are able to maintain their brands (which were built up over time, something else the new company lacks) with high advertising budgets - new companies don't usually have the capital for massive marketing campaigns.

As well as high marketing budgets, an industry in which there are high research and development budgets is another problem. A new company may have to spend many years with products in development before they can bring anything to market (this is common with drug companies). To get the finance for this they'll have to borrow from a bank or venture capitalist, and won't possess the amount of capital (or probably experienced research personnel) that the existing companies have. And let's not forget that these existing companies will be doing their own R&D at the same time.

Economies of scale, in many forms, are barriers to entry. The mere lack of capital is an example of a financial economy of scale (big, existing companies are more trusted by financial institutions and hence find it easier to secure finance). Technical economies of scale mean that existing companies can afford better technology and hence be more efficient. An industry with complicated technology is typically non-contestable.

Producers love barriers to entry; consumers hold a different view. Markets which are to the right on the scale of competition (monopolies, oligopolies) have many barriers to entry, which makes them less contestable. This opens the consumer up to abuse - when producers face little competition they can begin to raise prices, reduce quality and generally become inefficient. Competition engenders efficiency by shifting power to the consumer - when companies have to clamour with each other for sales, they have to please the consumer with low prices and high quality.

A market with many barriers to entry is not one where the consumer holds power. Because the producers face little competition, and little threat of competition in the future, they can abuse the customer.

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