Economic Barriers to Entry
Economic Barriers to Entry
- What is an economic barrier to entry?
An economic barrier to entry is the existence of a high start-up cost of investing in a new venture and thus prevents a new competitor from entering an area of business. An economic barrier to entry works in a way that it benefits the existing firm by protecting its revenues and profits. One type of economic barrier is patent (Miller & Gal, 2015). A patent is a right granted to an investor that guarantees the exclusion of all other investors from making, using or selling for 20 years. This implies that for 20 years, no firm except the one with the rights would do business. During the period of patent, there would be a great monopoly, and thus there would be limited competition in the field of business (Miller & Gal, 2015). A software patent is an example in the US where Alice Corporation, a software company was denied patent over the CLS Bank International. The decision to patent followed a court’s decision were a ruling made in May 2013 that Alice’s patent was invalid.
- Prior to the invention of refrigerated railroad cars, beef prices varied widely across the United States. Explain why the introduction of this form of transportation had the expected effect of making the price for beef more uniform across the country.
The first patent of the refrigerated cars was introduced in the US in 1867. The refrigerated car was made to evade the transportation of livestock, which had had inedible parts. Besides feeding the animals was costly and the inedible parts like bones and the other cargo feeds would only increase freight costs. The refrigerated cars ensured that only the edible parts of the animals were shipped to avoid waste (Meneghetti et al, 2018). The decision also shifted the attention of the car designs, which strived for low ice consumption to avoid constant re-icing. Refrigerated car technology benefited consumers. The additional freight costs from the previous shipment method made the prices to fluctuate as per the supplier (Meneghetti et al, 2018). Refrigerated cars reduced miscellaneous expenditures during transportation, and thus reducing transportation costs. Therefore, prices for beef become more uniform across the US.
References
Meneghetti, A., Da Rold, G., & Cortella, G. (2018). Sustainable refrigerated food transport: searching energy efficient routes. IFAC-PapersOnLine, 51(11), 618-623.
Miller, A. D., & Gal, M. S. (2015). Licensee patent challenges. Yale J. on Reg., 32, 121.