Barriers to Entry: Why New Competitors Struggle

Some markets are hard for new firms to enter. Understanding why helps explain prices and market power.

By Iris Penhaligon | Oct 11, 2026 | 4 min

Barriers to entry are factors that make it difficult for new firms to enter a market. They protect existing firms from competition.

They can arise naturally from the economics of an industry or from deliberate actions by firms or governments.

I Types

— Economies of scale
— High start-up costs
— Brand loyalty
— Control of essential resources
— Patents and licences
— Network effects

II Effects

Barriers can allow firms to earn higher profits over time. They can also reduce innovation.

III Policy

Competition authorities may investigate practices that create artificial barriers.

IV Lowering barriers

Technology can reduce barriers, such as online platforms reducing the cost of reaching customers.

This is general educational information about economics, not financial, investment, or tax advice. Consult a qualified, licensed professional before making financial decisions.

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