what are barriers to entry 
in economics barriers to entry are factors that can prevent or impede newcomers to a market or industry sector as such they can limit competition barriers to entry can include high startup costs regulatory hurdles or other obstacles that prevent new competitors from easily entering a business sector they benefit existing firms because they protect their market share and ability to generate revenues and profits common barriers to entry include special tax benefits to existing firms patent protections strong brand identity customer loyalty and high customer switching costs other barriers include the need for new companies to obtain licenses or regulatory clearance before operation investopedia julie bangunderstanding barriers to entrysome barriers to entry exist because of government intervention while others occur naturally within a free market often companies lobby the government to erect new barriers to entry ostensibly this is done to protect the integrity of the industry and prevent new entrants from introducing inferior products into the market generally firms favor barriers to entry in order to limit competition and claim a larger market share when they are already comfortably ensconced in an industry other barriers to entry occur naturally often evolving over time as certain industry players establish dominance barriers to entry are often classified as primary or ancillary a primary barrier to entry presents as a barrier alone for instance in the case of steep startup costs an ancillary barrier is not a barrier in and of itself rather combined with other barriers it weakens a potential firm s ability to enter the industry in other words it reinforces other barriers barriers to entry may be natural high startup costs to drill a new oil well or created by governments licensing fees or patents stand in the way or by other firms monopolists can buy or compete away startups government barriers to entryindustries heavily regulated by the government are usually the most difficult to penetrate examples include commercial airlines defense contractors and cable companies the government creates formidable barriers to entry for varying reasons in the case of commercial airlines not only are regulations strict but the government restricts new entrants to limit air traffic and simplify monitoring 1 cable companies are heavily regulated and limited because their infrastructure requires extensive public land use 2sometimes the government imposes barriers to entry not by necessity but because of lobbying pressure from existing firms for example one state requires government licensing to become a florist and two states and washington d c require government licensing to become an interior designer 34 critics assert that regulations on such industries are needless accomplishing nothing but limiting competition and stifling entrepreneurship natural barriers to entrybarriers to entry can also form naturally as the dynamics of an industry take shape brand identity and customer loyalty serve as barriers to entry for potential entrants certain brands such as kleenex and jell o have identities so strong that their brand names are synonymous with the types of products they manufacture high consumer switching costs are barriers to entry as new entrants face difficulty enticing prospective customers to pay the additional money required to make a switch barriers to entry may also be referred to as barriers to competition entry barriers or market entry barriers industry specific barriers to entryindustry sectors also have their own barriers to entry that stem from the nature of the business as well as the position of powerful incumbents before any company can make and market even a generic pharmaceutical drug in the united states it must be granted a special authorization by the fda the fda cites that even the most important drugs for general public health may take up to six months to approve although the standard review timeline is around 10 months more complex drugs or applications may be required to enter this review cycle multiple times due to revisions 56moreover just 18 9 of applications for generic drugs were approved in the first cycle in 2023 7 each application is incredibly political and even more expensive in the meantime established pharmaceutical companies can replicate the product awaiting review and then file a special 180 day market exclusivity patent which essentially steals the product and creates a temporary monopoly 8it may take billions of dollars to bring a drug to market equally as important it can take up to 10 years for a drug to be approved for a prescription even if a startup company had the capital on hand to develop and test the drug according to fda rules it still might not receive revenue for 10 years 9 lastly ultimate success is far from guaranteed between 2011 to 2020 the likelihood of approval for development candidates for just the first phase was 7 9 10consumer electronics with mass popularity are more susceptible to economies of scale and scope as barriers economies of scale mean that an established company can easily produce and distribute a few more units of existing products cheaply because overhead costs such as management and real estate are spread over a large number of units a small firm attempting to produce these same few units must divide overhead costs by its relatively small number of units making each unit very costly to produce established electronics companies such as apple aapl may strategically build in switching costs to retain customers these strategies may include contracts that are costly and complicated to terminate or software and data storage that cannot be transferred to new electronic devices this is prevalent in the smartphone industry wherein consumers may pay termination fees and face the cost of reacquiring applications when they consider switching phone service providers 11the barriers to entry in the oil and gas sector are extremely strong and include high resource ownership high startup costs patents and copyrights in association with proprietary technology government environmental regulations and high fixed operating costs high startup costs mean that very few companies even attempt to enter the sector this lowers potential competition from the start in addition proprietary technology forces even those with high startup capital to face an immediate operating disadvantage upon entering the sector high fixed operating costs make companies with startup capital wary of entering the sector local and foreign governments also force companies within the industry to closely comply with environmental regulations these regulations often require capital to comply forcing smaller companies out of the sector 12it is generally very expensive to establish a new financial services company high fixed costs and large sunk costs in the production of wholesale financial services make it difficult for startups to compete with large firms that have scale efficiencies regulatory barriers exist between commercial banks investment banks and other institutions and in many cases the costs of compliance and threat of litigation are sufficient to deter new products or firms from entering the market compliance and licensure costs are disproportionately damaging to smaller firms a large cap financial services provider does not have to allocate as large of a percentage of its resources to ensure it does not run into trouble with the securities and exchange commission sec truth in lending act tila fair debt collection practices act fdcpa consumer financial protection bureau cfpb federal deposit insurance corporation fdic or a host of other agencies and laws 