Barriers of Entry of a Company into a Marketplace - Essay Example

In the business world companies face different economic variables that influence the entry of a company into a marketplace. These variables are commonly referred to as barriers of entry. Barriers of entry can be defined as circumstances particular to a given industry that create disadvantages for new competitors attempting to enter a market (Investorwords, 2010). Each industry has particular barriers of entry which implies that barriers change with the circumstances. The barriers of entry are also influenced by the type of market structure the enterprise belongs too.

The four types of market structures are perfect competition, monopolistic competition, monopoly, and oligopoly. Perfect competition and monopolistic competition in general have lower barriers of entry than monopoly and oligopoly A common barrier of entry many companies face is capital requirements. For example it is very difficult to penetrate the airline industry because an investor needs billions of dollars to buy up the capital assets such as planes necessary to penetrate the industry. Other business such as becoming a hot dog vendor does not require the investor to have that much start up money, thus capital is not a barrier of entry.

Larson Inc. operates in the electronics industry specifically in the market for batteries. In this industry capital represents a medium barrier of entry. Another barrier of entry that makes it difficult for a company to penetrate a particular marketplace is regulations. To enter the mining industry companies need to have lots of permits and must comply with strict environmental regulation. It takes time and money to obtain permits which makes it hard to penetrate such an industry. Regulation is not a barrier of entry for Larson.

A third barrier of entry that can impede the entrance of new companies into an industry is branding. Branding makes it hard for others to penetrate an industry because the competitor with the strong brand value will retain a lot of customers due to the customer loyalty that is establish through a branding strategy. In order to develop a strong brand in the marketplace it takes time for the brand to gain value. Larson should exploit developing a branding strategy in order retain more customers.

A fourth barrier of entry is first mover advantage. The first business to establish a presence in a marketplace will have an advantage over the second movers. This advantage gained by the first mover can be categorized as a barrier of entry that gives the first participant a competitive advantage. In the United States and Germany Larson are second movers in the battery marketplace. A fourth barrier of entry that ensures a company is protected from competition is the legal protection that comes from a patent.

Patents are a barrier of entry because a company that holds a patent has the privilege of marketing a product without the possibility of competition. A patent gives the holder 17 years of protection. During that time nobody can imitate the product a company is marketing. Patents are used a lot in the pharmaceutical industry. Patents are necessary to protect innovation in this industry. To develop new drugs pharmaceutical can spend upwards of $800 million per drug. Larson Inc. should utilize patent protection in the development of new products.

A fifth barrier of entry is creating strong relationships with suppliers and customers (Moneyterms, 2010). A strong relationship will deter the client or supplier from doing business with the competition. Due to the amount of competition in the US battery market Larson should improve its customer and supplier relation to differentiate themselves. References Investorwords.com (2010). Barriers of Entry. Retrieved August 25, 2010 from http://www.investorwords.com/425/barriers_to_entry.html Moneyterms.co.uk (2010).

Barriers of Entry. Retrieved August 25, 2010 from http://moneyterms.co.uk/barriers-to-entry/