Which term describes obstacles that prevent new competitors from entering an industry?

Which term describes obstacles that prevent new competitors from entering an industry?

• A. barriers to entry
• B. external diseconomies of scale
• C. diseconomies of scale
• D. economies of scale

Answer: (A)

Barriers to entry describe obstacles that prevent new competitors from entering an industry. These can be structural factors like high startup costs, control of key resources, strong brand loyalty, or regulatory licenses, as well as strategic moves by incumbents such as exclusive distribution agreements or aggressive patent protection. When such barriers exist, potential new entrants face greater risk or lower potential profitability, making entry unattractive or impractical. The other terms relate to costs rather than entry obstacles. Economies of scale are cost advantages gained from producing larger quantities, which often help established firms but don’t by themselves block entrants. Diseconomies of scale are the opposite, where costs rise as output grows, usually due to coordination issues. External diseconomies of scale refer to industry-wide cost pressures that affect all firms in a region or sector, not specifically about preventing new players from entering.

Barriers to entry describe obstacles that prevent new competitors from entering an industry. These can be structural factors like high startup costs, control of key resources, strong brand loyalty, or regulatory licenses, as well as strategic moves by incumbents such as exclusive distribution agreements or aggressive patent protection. When such barriers exist, potential new entrants face greater risk or lower potential profitability, making entry unattractive or impractical.

The other terms relate to costs rather than entry obstacles. Economies of scale are cost advantages gained from producing larger quantities, which often help established firms but don’t by themselves block entrants. Diseconomies of scale are the opposite, where costs rise as output grows, usually due to coordination issues. External diseconomies of scale refer to industry-wide cost pressures that affect all firms in a region or sector, not specifically about preventing new players from entering.