barriers to entry and exit

Question 1

what are barriers to entry and examples

Answer 1

-any obstacle that prevents new firms entering markets

-legal: patents, standards and regulation, red tape (paperwork)
-technical: start up costs, economies of scale, natural monopoly, sunk costs(specialised machinery)
-strategic:(incumbent firms) predatory pricing, limit pricing, heavy advertising
-brand loyalty

Question 2

barriers to exit

Answer 2

-any obstacle that prevents a firm leaving a market

-undervaluation of assets
-redundancy costs
-penalties for leaving contracts early
-sunk costs