According to chapter three in the textbook, an entry barrier is “an obstacle that
determines how easily a firm can enter an industry and often significantly predict industry profit
potential.” With that being said, it is important for a company to realize the barriers to entry for
the industry they are tapping into. One reason it is essential to understand the barriers to entry is
for the firm to predict how well they will do moving forward and how easily they will be able to
enter the market.
There are several types of entry barriers; of which, economies of scale were most notable
for me when reviewing the case of The Ready-to-Eat Breakfast Cereal Industry in 1994. By
definition found in chapter three, economies of scale are the “cost advantages that accrue to firms
with larger output because they can spread fixed costs over more units, employ technology more
efficiently, benefit from a more specialized division of labor, and demand better terms from their
