The four primary barriers to entry are: (1) resource ownership, (2) patents and copyrights, (3) government restrictions, and (2) start-up cost.

Resource Ownership

To enter this industry, the eleventh firm must acquire ownership over petroleum resources. This could be accomplished in a couple of ways. (1) It could purchasing existing resources from any of the ten firms currently in the industry. An easy option, but if the original ten are unwilling to sell, then number eleven faces a sizeable enter barrier. (2) It could seek out as of yet undiscovered petroleum resources through exploration and drilling. The expense of such an endeavor also imposes a significant barrier to entry for firm number eleven.

Patents and Copyrights

Patents and copyrights impose barriers to entry. If, for example, the Flex-Star Plaque Company holds a patent on Flex-Star Interactive Trophy Plaques, then other companies, such as OmniPlaque are prevented from producing trophy plaques using this patented technology. OmniPlaque, of course, might patent its own form of interactive trophy plaque, but the need to develop the technology and acquire a patent imposes a barrier to entry. And there is no guarantee that OmniPlaque will be able to develop a product or acquire a patent.

While copyrights work in much the same way, they tend to create less of a barrier to entry. A patent on the technology behind Flex-Star Interactive Trophy Plaques is a severe barrier to entry. In contrast, the copyright on a Brace Brickhead, Medical Detective novel is much less restrictive. Another author could write and copyright a similar detective novel about Chance Chesterfield, Super Sleuth. Each is a relatively close substitute for the other.

Government Restrictions

Governments frequently erect barriers to entry by legally limiting the number of participants in a market. Some of the more common examples are public utilities that provide cities with electricity, natural gas, telephone services, and garbage collection. Such legal restrictions for public utilities are usually designed to make the most effective use of natural monopoly markets that can create serious inefficiency problems.

Other legal restrictions, such as licenses or charters, are generally intended to pursue other goals, but create barriers to entry nonetheless. For example, many professions, including physicians, nurses, hair stylists, plumbers, and electricians, are licensed to maintain quality standards for consumers. However, they also create entry barriers.

Start-Up Cost

These point to a general barrier to entry--start-up cost. Three types of start-up cost comprises another important class of barriers.

• One is the cost of acquiring productive capital. Many industries use a large amount of expensive capital, such as a factory. To be competitive with existing firms, a new entrant needs this capital. The more capital that is needed and the more expensive the capital is, then the higher the entry barrier.


• A related start-up cost is initial operating losses generated by high average cost. If plant size and the large quantity of capital generate significant long-run economies of scale and/or short-run decreasing average total cost, then the existing firms with larger production quantities incur lower average cost than newer firms with smaller initial production quantities. The new entrant is likely to incur significant operating losses until it is established enough and produces enough to benefit from lower average cost.


• Another start-up cost involves advertising and brand-name recognition. An industry with several well-established brand names forces a new entrant to spend a great deal on advertising just to reach an equal footing. Once again, this is a significant start-up cost that can limit the entry of new firms.