Entry or potential entry of new firms into a market can erode the market power of existing firms

Entry or potential entry of new firms into a market can erode the market power of existing firms

BARRIERS TO ENTRY

Entry or potential entry of new firms into a market can erode the market power of existing firms by increasing the number of substitutes. Therefore, as a general case, a firm can possess a high degree of market power only when strong barriers to the entry of new firms exist. A strong barrier to entry exists when it is difficult for new firms to enter a market where existing firms are making an economic profit. Strong barriers to entry hinder the introduction of new, substitute products and protect the profits of firms already in the market.

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Answer preview Entry or potential entry of new firms into a market can erode the market power of existing firms

Entry or potential entry of new firms into a market can erode the market power of existing firms

APA

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