The difference between barriers to entry and the threat of entrants

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What are entry barriers?

Entry barriers are things that make it difficult for new companies to enter an industry. This may be the large capital investment that is required, the fact that you can’t operate at a small scale, or the existing locked-in customer base. Essentially things that make it difficult for new companies to be able to compete are entry barriers.

What is the threat of entrants?

The threat of entrants is the exact opposite of this. If you are an incumbent firm, already in the market, then you are more concerned with the threat that new firms will enter the market. Thus, if there are only limited entry barriers, there is a high threat of new firms entering the market.

Why use one phrase over the other?

The term that tends to get used depends on what you are interested in. If you are a startup, looking to enter an industry, then discussing entry barriers is more likely. As a startup, you are most likely interested in how to overcome these barriers to entry. 

If on the other hand, you are already in the industry, it makes more sense to be discussing the threat of new firms entering. Porter’s Five forces, for example, which is based on the perspective of existing firms in the industry, analyzes the various threats to industry profitability – and thus it is more consistent to be talking about the threat of new firms entering the market. 

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