Association of Welfare Cost With Barriers to Entry

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Why firms choose to enter the market?
There are several reasons why new firms enter the market which are as follows:
• Industry take overs and mergers
• The development of technologically similar firms who develop their product range.
• The change of brand names across sectors
• A rise in import penetration.

Barriers to Entry:

Barriers to entry are the obstacles that a firm has to face in order to enter the market. Such barriers make it difficult for firms to enter easily and act as a hurdle. Depending on the country, these factors are ranked as more or less relevant depending on the overall strategy of the firm.

Barriers to entry are classified into two that is exogenous and endogenous. Exogenous barriers are the ones that firms are not able to control. Such barriers include product differentiation, need for capital, switching costs, costs of new technology adapted etc.
Endogenous barriers are created by the established firms through their market strategies. These barriers on the other hand include prince competition, sales promotion, advertising etc.

Both internal, as well as external barriers, need to be taken into account when breaking through into a new market. Also, they need to adopt such strategies that minimize their costs and maximize their success rate.

However, these costs have to be borne by the industries who seek to enter the industry. These barriers can be in the following form:
• Cultural differences
• Geographic differences
• Tight governmental laws and regulations
• Trade Restrictions…