Why do firms want to create barriers to entry?

Answer 1

Firms need people that can do the job well & represent them in a "good light" to others. Writing a question that really makes little sense would be an example.

Answer 2

If you look at the spectrum of products, and order them from common to elite, you'll see at one end wheat, and on the other end a BMW, or something like that.

Now, if I were selling wheat, that's fine, but it's a commodity. That means I can't control anything except whether I produce it, and how much I produce. The market tells me the price I can get for it. That's great, if nobody wants to produce wheat. But, it's been our experience that wheat doesn't pay very well, sometimes less than what it costs me to produce it. So, I've invested a lot of time and energy for something I can't make any money at.

On the other hand, if I'm making BMWs, and everyone wants one, then I can charge a whole lot more for one than it cost me. There are beariers to entry: the name, the brand, the engineering, the cost of the factories, the skilled labor in the factories, the dealership network, the mechanics, etc. If someone wanted to make newBMW, they'd have to invest billions to do it.

So, strategic theory looks at constraints. Michael Porter came up with five forces of competetive advantage: potential entrants, suppliers, buyers, substitutes, and industry competitors. Barriers to entry keeps these five forces at bay, creating a strategic (long-term) advantage for a firm, and therefore some safety for the money that was invested in the firm.

The bottom line: if an executive can think a little about where his/her company fits in the world, he/she won't have as many problems with closing factories because he/she can't get anybody to buy the firm's products.

Good luck

Answer 3

Not sure if you are talking about barriers to entry for employees or for the general business. For employees, a firm would only want the best talent, to drive high performance. For general business, you would want to be in a business that is hard to compete in...so you can be the best at what you do.

Answer 4

If an business enterprise earns greater beneficial than minimum earnings (i.e. ideal opposition) in a frictionless placing, it is going to entice new gamers. The worst that may take place if the organisation behaves monopolistically is that new gamers will enter and rigidity down costs. that's no worse than the organisation pricing low initially, to deter entrants. This worst case will take place on condition that there are particularly no limitations to get right of entry to, in terms of time, 0 capital expenses, etc. interior the actual worldwide, the organisation would be waiting to savor supernormal earnings for it sluggish. Now if it particularly is so, the organisation could be greater beneficial off by charging an quantity greater than the aggressive fee yet no longer profitable sufficient for different companies to pass into, and luxuriate in this for eternity. So, i does no longer anticipate the organisation to set the appropriate opposition fee to deter entrants, yet neither might I anticipate it to act monopolistically.

Answer 5

Creating barriers to entry implies some degree of pricing power which in turn means economic profits (don't confuse with accounting profits).

you can find more detail in any intro to microecon textbook.

Answer 6

Monopoly tendencies lead to such reaction,often.Data evaluation is another issue.Competition could be combined,too.Eventually barriers are not bad as long as they don`t leave OUT!