Barriers To Entry
Categories: Company Management, Financial Theory
Barriers to entry is the economic term describing the existence of high startup costs or other obstacles that prevent new competitors from easily entering an industry or area of business.
Is that legal? Is that fair? This is often an area of legal if not political dispute. What would a level playing field look like? How does healthy competition foster innovation?
Vanessa wants to start a winery. As she writes her business plan and researches her startup requirements, she discovers the barriers to entry are extremely high: large land expenses to plant the vineyards, high payroll to ensure the proper staff are caring for the grapes, expensive equipment for the large-scale production and aging of wines, oak barrels, cold storage, building demolition and construction costs, heavy tax bills for producing alcohol, marketing and brand identity costs, etc. Add to all of these frictions the already-existing distribution relationships of the already-existing wine producers. Tough industry to break into.
With all of these obstacles, Vanessa decides to stick to the part of wine she knows best…drinking it.
