What is?
- barriers which limit a new company from being created
- the more and higher the barriers it is more difficult to enter a market
Examples
Resource Barrier
- unique access to resources
- e.g. oil is only present in sufficient quantities in few countries
Economies of Scale | Natural Monopolies
- cost function highly favors economies of scale
- extreme specialization
- resulting in Monopoly or Oligopoly naturally
- or a Cartel → cartel’s don’t like competition
Market Saturation Barrier
- A saturated market is harder to join in on
- Competitors can still join in markets which are not as separated
- Red Bull in EU market
- Monster in US market
Initial Investment Barrier
- a high investment for any competitors to build up a brand similar to the original
Innovation Barrier
- it is just too hard to join the race because the innovation costs are so high
- other Know-How or R&D barriers
Patent Barrier
- you can’t use my technology or I’ll sue you
- pharma is big with patents
Vertical Integration
- Vertical Integration
- integrating much of the supply chain into conglomerate or company
- e.g. BYD electric car manufacturing with battery producer
Sheperds’s 22 Entry Barriers
- capital requirements
- economies of scale
- absolute cost advantages
- product differentiation
- sunk cost → Sunk Cost Fallacy
- research and development intensity
- asset specificity → e.g. semiconductor industry
- vertical integration
- diversification by conglomerates
- switching costs in complex systems
- special risks and uncertainties
- information asymmetries
- formal barriers set up by government (e.g. Gambling)
- preemptive action by incumbents
- excess capacity
- selling expenses, including advertising
- segmenting the market → Market Segmentation
- patents
- exclusive control over strategic resources
- taking actions that raise rivals costs
- high product differentiation
- secrecy about competitive conditions