8.3.2 Barriers to entry and exit
These can be defined as factors that allow incumbent firms to earn supernormal
profits in the long run by making it unprofitable for new firms to enter
the industry. It is useful to distinguish between structural and strategic
(i) Industry (ii) Firm
P1
S1 S2
SMC2
SMC1
LAC1
LAC2
D1
SL
D P 2 2
P3
P1
P2
P3
q1q3 q2 Q1 Q2 Q3
Quantity Quantity
Price Price
Figure 8.5. Adjustment under decreasing costs.
300 STRATEGY ANALYSIS
barriers. Structural barriers, often referred to as natural barriers, occur
because of factors outside the firm’s control, mainly when an incumbent firm
has natural cost or marketing advantages, or is aided by government regulations.
Strategic barriers occur when an incumbent firm deliberately deters
entry, using various restrictive practices, some of which may be illegal.
a. Structural barriers
There are six main types of structural barrier.