The Importance of Barriers to Entry and Exit

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    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.

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