If you are doing business, it’s obvious that you will never want to have to lot of competitors inside the market, if you want to earn a good amount of profit.
But for that, you have to invest in a business that creates a high entry barrier. So that you will be able to able to earn a good amount of profit.
What is barriers to entry?
The barrier to entry can be defined as a barrier or something that prevents new entrants from easily entering a market. Mostly financial and strategic buyers prefer to go in for a company with high entry barriers because this gives benefit to them in different ways. It reduces the competition for the existing firm by preventing new competition from coming into the market and gives guard to their profits and revenue.
High entry barrier
When the cost of entering into an industry is too high we can consider it a high entry barrier.
These are the few things that could cause a high entry barrier:
High license fees. For example, the liquor license is very limited, so its price can be increased significantly which can cause a high entry barrier for the bar industry. This is the reason there is less amount of competition in the bar industry and almost every liquor license holder is getting well profit.
Sometimes you need a high level of initial investment which everyone doesn’t have so this can be also a cause for high entry barriers. And reduces the competition for all the firms which already exist.
Basically barriers to entry are categorized into three parts
Legal or regulatory barriers
This type of barrier includes many things like contracts, agreements, patents, copyrights, trademark and also regulatory protection.
A vendor should take care of all these things which are important for safety and protection. He should have all the legal documents and copyrights which ensure protection such as legal contracts and agreements which defines the range of protection.
Vendors should be clear about that, how they will create the market barrier and they should also know to protect them. The market barrier includes lots of important things like the relationship of customer and supplier, secrets of their trades, their brands, location, etc. These are some important aspects that play a major role in market barriers.
In this barrier there are many aspects includes such as investing in fixed assets, regulatory certification which is high in cost and expensive researches all these things need to be documented as proof of barriers for new entries in the market. Because of this barrier you will obtain a premium valuation from any buyer.
Barriers to Entry in forex industry
When we think about forex and trading industry we can see a lot of problems and barriers. Most of them in business are lack of capital and legal barriers such as regulatory protection or valid license for trading.
Basically barrier of entry operates according to the oddity which depends on the different firms because every firm has different capabilities, strategies, and assets. If an entry barrier will be too high it is obvious that automatically your competitors will decrease in the market, because it prevents all your competitors from entering into the market by creating obstacles for them and gives your rise to monopoly.