Explain 2 Types of Barriers to Entry Which Can Prevent Potential Competitors from Entering an Industry Essay

Monopoly and oligopoly both are types of barriers to entry which can prevent potential competitors from entering an industry A barrier to entry is anything that prevents entry when entry is socially beneficial A monopoly possesses high barriers to entry. This deters other firms from entering the market and thus allows the monopoly to keep their status as a single seller of unique product. There are two types of barriers to entry that a monopoly may possess. This includes natural and man-made barriers to entry. Natural barriers include economies of scales and high fixed costs.

Economies of scales provide a cost advantage to firms that are pioneer in the industry, this allows them to grow in large size in that the firm has a monopoly control of the supplies and keep other firms will not be able to compete. High fixed costs is a method to prevent other firms entering the market, a monopoly has a economies of scales which are large in relation to the size of the market ,and the costs is lower than other potential competitors, this will cause a monopoly gain higher profit than other potential competitors.

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Besides , a monopoly has a greater financial capabilities in terms of start out capital, loan limits and budget allocation, this cause the firms can have high initial investment in latest technology like machineries and new production methods which will improve overall efficiency, this makes the existing firms more competitive in the market and gives them a structural advantage over potential rival firms. These affect the technology of other potential competitors is inefficiency and no more money to invest the technology.

Limited market demand is a limited the quantity of demand, because people don’t want to buy all product which is excess supply, competitors should be compete the market sharing, if the firm has a high market sharing , it would gain more profit of this. legal barriers include having patents and copyrights or possessing certain exclusive right to exploit the patent without competition for a period of 20 years in UK.

In effect a 20 year monopoly. These provide firms with legal protection for their ideas or design, which prevent other firms imitating them. For example , the drug Viagra which was patented by the American firm Pfizer in 1996 and which is grossing annual sales of over $1 billion, this patent us due to run until 2016 Legal rights can provide opportunity to monopolise the market in a good.

Intellectual property rights, including patents and copyrights, give a monopolist exclusive control over the production and selling of certain goods. Property rights may give a firm the exclusive control over the materials necessary to produce a good. Deliberate Actions: A firm wanting to monopolise a market may engage in various types of deliberate action to exclude competitors or eliminate competition. Such actions include collusion, lobbying governmental authorities, and force.