Barriers to entry prevent new firms from entering a market and competing with existing firms. The barriers to entry that might allow a monopolist to earn positive profits in the long run are as follows:
• Economies of scale and mergers
This can act as a barrier to entry in different industries because only large firms can achieve the cost reduction benefits of these economies. Industries with economies of scale have a tendency to be dominated by a small numbers of large firms. So, monopolist uses economies of scale as their competitive strategy to earn positive economic profits. Mergers help to achieve the necessary size to realize economies of scale. It is important in the areas of technology; media, where fixed costs are large and marginal cost are low.
• Barriers created by government
This includes licenses, patent and copyright. Licensing is necessary for maintaining the quality of the individuals in different professions. Patent and copyrights give the producer of a new invention or printed work the right to the profits from that work for a number of years in order to encourage research, innovation and development of new products. These helps firm to gain market power and act as barrier to entry.
• Input barriers
Input barrier include control over raw materials or other inputs in production process. This barrier arises from lack of access to financial capital by small firms compared with larger firms. So, input barriers act as barrier to entry to the small firms to enter into the monopoly market.
• Brand loyalties
Brand loyalties can be created through advertising and other marketing strategy. These strategies help managers to gain market power which act as barrier to entry.
• Consumer lock -in and switching cost
It is a form ...