Barriers to Entry and Exit

Entry and exit barriers limit the number of firms competing in a product market or industry. Entry barriers lessen the degree of competition by imposing hurdles that decrease the ability of new entrants to operate profitably. One result is that firms operating in an industry protected by strong entry barriers tend to benefit from higher prices, and thus profits, than do firms operating in an industry without strong entry barriers. In contrast, exit barriers increase the degree of competition within a product market or industry by imposing obstacles that make exit difficult or costly. The rivalry between firms in an industry with strong exit barriers tends to be more intense than the rivalry between firms operating in an industry where exit is easy or relatively ...