Barriers to entry in simple words refer to obstacles put which are out up by existing so that new firms find it difficult to enter a particular industry. Given below are some of the advantages of barriers to entry –
- It makes sure that the current players in the industry do not have the fear of competition which enables them to concentrate on research and development of new products rather than indulging in an ugly fight where every company tries to lower the price of product to encounter competitors taking their business.
- It helps in putting an end to high employee turnover rate because since there are fewer companies there is less competition among companies to hijack the employees of other companies operating in same industry which happens in industries like information technology where there is no barrier to entry leading to high employee turnover rate in IT companies.
- In case where natural resources are involved it is in interest of government to have less firms as government has to look whether the natural resources are being utilized in a proper way or not and it is easier to monitor few big companies rather than monitoring large number of small companies.
- It is also beneficial to consumer because they get quality products and services rather than cheap low quality products and services. Take an example where there is no barrier to entry in healthcare which leads to large and small companies opening a hospital and some of the companies only want to earn profits without paying attention to quality of services provided to patients and thus playing with health of people of the country.
- It also helps in reducing the price of products because due to barriers to entry companies can produce goods at large scale giving them economics of scale which in turn will benefit the customer as they will get same quality product at cheaper price.
Though there are many advantages of barriers to entry there is one major disadvantage of barriers to entry which is called monopoly where few firms try to take control of whole market of a particular product and charge exorbitant rates from consumers. However this disadvantage can be offset if government has proper mechanism and tools to check that firms do not create monopoly like conditions.