Background
“Deterrents to entry” are a fundamental concept in the study of market structures, competition, and economics as a whole. They represent the various mechanisms, obstacles, and policies that inhibit new competitors from entering an industry or market.
Historical Context
Historically, deterrents to entry have played a critical role in shaping market dynamics and influencing business strategies. In the early 20th century, markets were often less regulated, leading to monopolistic practices where large firms could easily create barriers to ward off potential competitors. The evolution of competition law and antitrust regulations aimed to curtail these practices and promote an environment for competitive markets.
Definitions and Concepts
Deterrents to entry encompass any factors that make it difficult or unappealing for new firms to enter a market. These can include high startup costs, stringent regulations, strong brand loyalty of existing firms, and exclusive access to essential resources. The broader term “barriers to entry” is effectively synonymous with deterrents to entry.
Major Analytical Frameworks
Classical Economics
In classical economics, deterrents to entry were less studied as the focus was primarily on labor, capital, and land factors impacting economic output.
Neoclassical Economics
Neoclassical frameworks consider deterrents to entry in their analysis of market structures, recognizing the importance of perfect competition and the negative effects monopolies and oligopolies can produce.
Keynesian Economics
Keynesian economics indirectly touches on deterrents to entry, especially when considering the impacts of government intervention in stimulating economic activities and the resulting implications for new businesses.
Marxian Economics
Marxian economic theory critiques capitalism and recognizes barriers imposed by capital accumulation among capitalists, who naturally inhibit entry to protect their interests.
Institutional Economics
This framework examines the role of institutional forces, such as legal systems and cultural norms, in creating and sustaining deterrents to entry.
Behavioral Economics
Behavioral economists might explore how psychological factors and heuristics influence perceived deterrents to entry, affecting decisions made by potential new entrants.
Post-Keynesian Economics
Post-Keynesian theory expands on Keynesian concepts to assert the importance of market dynamics, identifying deterrents to entry as significant in preventing ideal competition levels.
Austrian Economics
Austrian economists may argue that deterrents to entry are part of natural entrepreneurial processes, where innovation and superior management strategies legitimate their existence.
Development Economics
In emerging markets, development economics often focuses on lowering deterrents to entry to encourage investment and competition, vital for economic growth and progress.
Monetarism
Monetarists typically focus more on financial factors of the economy, but market entry can impact broader economic policies and situations such as inflation control and employment.
Comparative Analysis
Comparing deterrents to entry across different market structures, such as perfect competition, monopolistic competition, oligopoly, and monopoly, reveals the varying degrees and forms that these barriers or deterrents can take.
Case Studies
- Telecommunications Industry: High initial capital investment and regulatory hurdles make entry difficult.
- Pharmaceutical Industry: High R&D costs and stringent government approvals act as significant deterrents.
- Technology Sector: Intellectual property and first-mover advantages often discourage new competitors.
Suggested Books for Further Studies
- “Industrial Organization: Contemporary Theory and Practice” by Lynne Pepall, Dan Richards, George Norman.
- “The Innovator’s Dilemma” by Clayton M. Christensen.
- “Modern Industrial Organization” by Dennis W. Carlton and Jeffrey M. Perloff.
Related Terms with Definitions
- Barriers to Entry: Obstacles that prevent new competitors from easily entering an industry or area of business.
- Monopoly: A market structure characterized by a single seller who controls the entire market’s supply of a product or service.
- Oligopoly: A market structure in which a few firms dominate the market and have the ability to affect prices.
- Regulations: Rules established by governmental agencies meant to control business practices in specific industries.
- Start-Up Costs: Initial expenses incurred to begin a business and develop a new product or service
