The barriers of entry has been a great topic of discussions with Academicians, economists and government officials for long period of time. They limit the competition of new entrants which results in the profit of big incumbents. And most of the time this lead to monopoly of companies in the market. “The importance of barrier in deterring entry of competitors into the markets, however varies by products and industries “(Karkaya, 2002; yang, 1998). As we know lot of people are done research on barriers of entry and they highlighted some discouraging factors and at same time encouraging factors for new entrants to enter the market.
Capital requirements to enter a market, customer switching costs, access to the distribution channels, and government policy (Porter 1980) discourages the new entrants to enter the market. While there are some encouraging factors also which attracts the new entrants. Size and expected growth of the market have been found to be significant determinants of entry. . Geroski et al. (1990) rewritten as an addition from Bain’s point of view, he says post entry conditions and focused on the efficiency of the incumbents and later entrants by defining a barrier to entry as a differential cost which has to borne by later entrants.
Also he added that incumbent strategies can affect the structural process and characteristics of market and industry in the long term.The entry into market can be viewed from the perspective of new entrants and from the perspective of incumbents in the market. The new entrants always check the opportunities and threats associated with the market by analyzing and the potential reaction of incumbents in the market. This analysis can identify the best markets to enter and can see the future growth of entrants. Also helps in avoiding unattractive markets. For example markets with over quantity of products and decreasing number of customers is a bad choice to enter.
On incumbent perspective they will try all measures and diverse mechanisms to prevent the new entrants from entering the market and consuming their profits. The structural barriers in an industry can be any structural aspect that allows for the incumbents to raise their prices above the minimum average cost of the potential entrants, thus hampering the potential entry and decreasing competition (Han & al. 2001). These structural factors can include aspects such as economies of scale, level of technology, absolute cost advantages or governmental regulations present in an industry (Bain 1956; Stigler 1968). For example the incumbent can come up with a unique feature in the product which cannot be clone and can remain unique in the market and thus by raising barrier for new entrants. Also they can charge high value than the others. This phenomenon of planning ahead of threats from entrants is considered as strategy planning.
By definition the long term planning and actions of firms for keeping their own competitive environment is termed as strategic management. By using different strategic plans and ideas the incumbents thus can create harder barriers for the new entrants to enter the market. There are many industries where barriers to entry are very high due to the structural characteristics of the industry such as high marketing intensity industries (eg: – Liquor industry) and at same time high technological barriers due to patents (eg: – Medical industry) (Blees & al. 2003). These kind of industry structures can act as a high barrier for the new entrants. While discussing on a strategic management view, (Porter 1980; 1985) mentioned that focusing on companies as unit of analysis and for improving the performances by adopting the strategies and to find an advantageous position in competition compared to others such as new entrants.
According to Porter (1985, p. 7), ‘Firms, through their strategies, can influence the five forces. If a firm can shape structure, it can fundamentally change an industry’s attractiveness for better or for worse.
‘ When we discussing his statement, through their strategies, firms can influence the intensity of rivalry within the industry, they can influence the bargaining power of buyers and suppliers, and they can influence the threat of substitutes and new entrants. He classified it as Porter’s five forces. This implies that companies, by creating and implementing competitive strategies, could deter enter into their industry.