Entry barriers

Entry barriers determine the thread of new competitors entering the market of a specific industry. New entrants, bringing additional capacity and the desire to gain market share have two negative effects on the attractiveness of an industry:

1. New entrants take away market share
2. New entrants bid down prices

Overall effect is that profitability will reduce. Entry barriers help protect against new entrants. Examples of important entry barriers are:

1. High fixed costs
   1. Customer acquisition costs such as the need for personal contact in sales
2. Brand loyalty
   1. Brand recognition will lead to lower entry barriers in online sales
3. Steep learning curve
4. High Switching costs
   1. Helps the incumbent to keep its customers
5. Strong IP protection
   1. Essential for any form with high development costs but low reproduction costs.
   2. Required for any digital good (music, film, software)