High Cost of Entry

In addition to legal imposed barriers to entry, there are economic barriers as well. In some industries the price of entry simply may be very high. Take the commercial aircraft industry, for example. The high cost of designing and testing new airplanes serves to discourage potential entrants into the market. It is likely that only two companies Boeing and Airbus-can afford the $10 to $15 billion that the next generation of aircraft will cost to develop. In addition, companies build up intangible forms of investment, and such investments might be very expensive for any potential new entrant to match.

Consider the software industry. Once a spreadsheet program (like Excel) or a word-processing program (like Microsoft Word) has achieved acceptability, potential competitors find it difficult to make inroads into the marker, Users, having learned one program, are reluctant LO switch to another, Consequently, in to get to try a new program, any potential  entrant need to run a big promotional, which would be expensive and may still failure to produce a profitable product. (Re call our discussion of network effects in Chapter 6).

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