Barrier to Entry

An impediment to the flow of resources (such as the entry of a new firm) into an industry or segment of a market. It usually refers to man-made impediments, though many also occur naturally, for example from economies of scale, which might make it very costly for a potential new entrant to achieve a scale large enough to enable competition on similar terms with extant organizations. Barriers include such arrangements as patents and licences. Many barriers arise through the operation of regulatory agencies. The existence of barriers ought not to lead automatically to the inference that they are invariably undesirable and ought to be removed. Such an inference is best reached (or rejected) after a careful analysis of the costs and benefits of reducing or removing them. Similar considerations apply to the setting up of new barriers or increasing the height of existing ones. Enormous resources are sometimes devoted to the surmounting of barriers, particularly the barriers deliberately created by society to illegal activities like the production and distribution of narcotics. See Contestable Market.

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