Sources of Barriers to Entry

A barrier to entry in economics refers to those factors which make it difficult for other companies to enter into a market began the production of goods or services and therefore gives rise to monopoly. Given below are some of the sources of barriers to entry –

1. Economies of scale is a barrier to entry for other companies because once a company which is already in the business attain a production volume which leads to decrease in the unit cost of a product it is difficult for other companies to achieve that sort of unit cost of a product and therefore companies do not make an effort to compete against such companies which achieved economics of scale.

2. Copyright and trademarks also are a source of barriers to entry, because for some products and services companies have copyright which gives them the privilege of producing goods or providing a service to customers.

3. Access to distribution channels is another major barrier to entry as those companies which are established in a line of business usually have control over channels of distribution through their relationship with distributors and therefore new entrants to an industry will find it really difficult to market their products or services which proves to be a significant barrier to entry.

4. There are many industries where at the start up one requires huge capital investments and therefore small companies with limited resources cannot compete in such industries.

5. Sometimes government policy through licensing requirements and other such requirements prevents the entry of new players in an industry.

Apart from above sources of barriers to entry there can many other sources of barriers to entry depending on the country and industry in which a new company is looking to enter.

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