Barriers to entry

Competition law
Basic concepts
Anti-competitive practices
Enforcement authorities and organizations

In theories of competition in economics, a barrier to entry, or an economic barrier to entry, is a cost that must be incurred by a new entrant into a market that incumbents do not have or have not had to incur.[1][2]

Because barriers to entry protect incumbent firms and restrict competition in a market, they can contribute to distortionary prices and are therefore most important when discussing antitrust policy. Barriers to entry often cause or aid the existence of monopolies or give companies market power.

Other definitions

Various conflicting definitions of "barrier to entry" have been put forth since the 1950s, and there has been no clear consensus on which definition should be used. This has caused considerable confusion and likely flawed policy.[1][3][4]

McAfee, Mialon, and Williams list 7 common definitions in economic literature in chronological order including:[1][5]

In 1963, Joe S. Bain used the definition "an advantage of established sellers in an industry over potential entrant sellers, which is reflected in the extent to which established sellers can persistently raise their prices above competitive levels without attracting new firms to enter the industry." McAfee et al. criticized this as being tautological by putting the "consequences of the definition into the definition itself."

In 1968, George Stigler defined an entry barrier as "A cost of producing that must be borne by a firm which seeks to enter an industry but is not borne by firms already in the industry." McAfee et al. criticized the phrase "is not borne" as being confusing and incomplete by implying that only current costs need be considered.

In 1979, Franklin M. Fisher gave the definition "anything that prevents entry when entry is socially beneficial." McAfee et al. criticized this along the same lines as Bain's definition.

In 1994, Dennis Carlton and Jeffrey Perloff gave the definition, "anything that prevents an entrepreneur from instantaneously creating a new firm in a market." Carlton and Perloff then dismiss their own definition as impractical and instead use their own definition of a "long-term barrier to entry" which is defined very closely to the definition in the introduction.

Primary and ancillary barriers to entry

A primary barrier to entry is a cost that constitutes an economic barrier to entry on its own. An ancillary barrier to entry is a cost that does not constitute a barrier to entry by itself, but reinforces other barriers to entry if they are present.[1][6]

Antitrust barriers to entry

An antitrust barrier to entry is "a cost that delays entry and thereby reduces social welfare relative to immediate but equally costly entry".[1] This contrasts with the concept of economic barrier to entry defined above, as it can delay entry into a market but don't result in any cost-advantage to incumbents in the market. All economic barriers to entry are antitrust barriers to entry, but the converse is not true.


The following examples fit all the common definitions of primary economic barriers to entry.

Contentious examples

The following examples are sometimes cited as barriers to entry, but don't fit all the commonly cited definitions of a barrier to entry. Many of these fit the definition of antitrust barriers to entry or ancillary economic barriers to entry.

Classification and examples

Michael Porter classifies the markets into four general cases :

These markets combine the attributes:

The higher the barriers to entry and exit, the more prone a market tends to be a natural monopoly. The reverse is also true. The lower the barriers, the more likely the market will become perfect competition.

Barriers to entry and market structure

  1. Perfect competition: Zero barriers to entry.
  2. Monopolistic competition: Medium barriers to entry.
  3. Oligopoly: High barriers to entry.
  4. Monopoly: Very High to Absolute barriers to entry.

See also


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