The Importance of Barriers to Entry and Exit
- Barriers to entry and exit determine the level of competition and contestability in a market
- The lower the barriers, the higher the contestability and level of competition.
- If it is easy for a firm to enter the market, supply will adjust quickly in line with changes in consumer demand (elasticity)
- There will therefore be pressure on incumbent firms to keep their costs low and make normal profit in the long run.