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Barriers to Entry

This paper discusses the various barriers to entry that businesses face in competitive markets and the strategies to overcome them.

Charlotte Garcia
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Barriers to EntryAnalyze the major barriers for entry and exit into the airline industry. Explain how each barriercan foster either monopoly or oligopoly. What barriers, if any, do you feel give rise to monopolythat will allow the government to become involved to protect consumers?In this discussion post we are asked to analyze the major barriers for entry into theairline industry, then relate how these particular barriers could foster either amonopoly or oligopoly market structure.Finally, we must present the barriers thatwe feel may rise to a monopoly that will allow the government to become involvedto protect the consumers.Before we can analyze the airline barriers, we must understand a barrier’sdefinition.Amacher & Pate tell us, “Barriers to entry are natural or artificialobstacles that keep new firms from entering an industry.” (Amacher, & Pate, 2013)Oligopolies and monopolies often preserve their position of control in a market byinfluencing potential rival’s access through costs or additional entry challenges.Theincumbents in these market structures may deliberately establish these barriers orthey can take advantage of natural barriers to enter the market.In the case of the airline industry, which is known as an oligopoly market structure,the entry-level barriers are many.To begin with, the high cost of developing a fleetof aircraft, repair parts, mechanics, pilots, terminal leases, fuel costs and aircraftrepair facilities is astronomical.In an article in the New York Times, titledTheChallenge of Starting and Airline, dated 25 May 2012, Jad Mouwad states that a newcarrier will require nearly one-hundred million dollars to start-up an airline.(Mouwad, 2012)With these high costs, potential investors must also consider a riskyreturn on investment as a barrier to the industry.Airlines have high fixed costs inrelation to their expected revenues.Add the fare wars experienced in the past bythe incumbent airlines and new entry airlines will soon see decreases in theircompany revenues, which will then affect their profits.Finally, many airports limitthe number of take off and landings allocated for each day.The addition of a newairline will create a sharp demand for these slots at high traffic locations andincumbent airlineswill try to monopolize these limited allocations.This is the onebarrier that I would see applicable for the government to intervene.It is not in theinterest of the government to assist an airline in profits or to alleviate a riskyfinancial endeavor, but it is in their realm of responsibility to ensure fair andequitable allocation of aircraft landings and takes off through the FAA.By allowing

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Business Management

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