Barriers to entry in industrial markets

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Keywords Market entry, Marketing process, Barriers, Industry, Business-to-business marketing, USA

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Abstract This study examines the importance of 25 barriers to market entry in industrial markets. A survey of 93 firms indicates that majority of business executives consider cost advantages and capital requirements to enter markets as the two most important barriers to entry followed by incumbents having a superior production process, capital intensity of the market, and customer loyalty. The least important barriers perceived by the executives in the study are government licensing requirements, followed by heavy advertising. In addition, the study investigates the underlying dimensions of barriers to entry in industrial market through a factor analysis. The results indicate that there are four major underlying dimensions of entry barriers in industrial markets.

Introduction

Barriers to market entry have been the topic of discussion among academicians, practitioners and government officials for many years. They limit competition by preventing market entry of new firms and often increase the profits of incumbent firms in the marketplace. Thus, barriers to entry sometimes lead to monopoly conditions. The importance of barriers in deterring entry of competitors into markets, however, varies by products and industries (Karakaya and Stahl, 1989; Yang, 1998).

Electronic data services

This paper reviews the barriers to entry literature from strategic marketing, strategic management, organization theory, and economics and examines the importance and underlying dimension of 25 barriers to entry. The research presented is differentiated from previous studies because of its focus on barriers to entry in industrial markets. A literature review of the topic via several electronic data services revealed no research examining a broad list of barriers in industrial markets. The literature review is presented in the next section, followed by research objectives, methodology, results, discussion and conclusions, limitations, and managerial implication sections.

Literature review

Previous research indicate that barriers to entry are created by absolute cost advantages, economies of scale, product differentiation, the degree of firm concentration (Bain, 1956; Mann, 1966), capital requirements to enter a market, customer switching costs, access to distribution channels, and government policy (Porter, 1980). While these barriers discourage market entry, there are conditions that encourage and make it attractive for new market entrants to enter markets. For example, size and expected growth of the market have been...