Indicate how high entry barriers into a market will influence:
a) Long-run profitability of the firms
Entry barriers to a market can be defined as anything that obstructs entry and effectively reduces or limits competition (Gans, King, Stonecash & Mankiw, 2003). These serve to benefit existing companies that are already in operation within an industry and protect their revenues or profits from being shared with new competitors. Examples of high barriers of entry include government regulations e.g. licensing, special tax incentives to existing firms, policies, etc which create difficulties such as costs in order to purchase licenses and adapt services or facilities to meet the required regulations. Patents allow some firms exclusive legal rights to produce new products or inventions for a given number of years. Economies of scale serve to disadvantage new entrants because larger companies are able to produce products in large quantities which effectively lower their average total costs and they can decide to lower their prices to a level which will force new entrants to operate at a loss.
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