Definition
Barriers to entry are obstacles that make it difficult for new firms to enter a market or industry. These can include high startup costs, regulatory requirements, strong brand loyalty, access to distribution channels, and economies of scale enjoyed by existing firms.
Why It Matters
Barriers to entry affect competition and market dynamics. High barriers protect established firms, reduce new competition, and can lead to higher prices for consumers. Low barriers encourage innovation and allow new businesses to challenge incumbents.
Example
In the airline industry, new entrants face high barriers due to expensive aircraft, strict safety regulations, and the need to secure airport slots. These factors make it costly and difficult for startups to compete with established airlines.