Barriers to Entry and Profitability

24 Pages Posted: 19 Sep 2008

See all articles by Diana Heger

Diana Heger

IHS Economics

Kornelius Kraft

University of Dortmund - Department of Economics; IZA Institute of Labor Economics

Date Written: 2008

Abstract

Barriers to entry are regarded as major impediments to the working of markets. Entry must not necessarily actually take place - the perceived threat of entry may encourage incumbent firms to behave as if they are in a competitive market, even if they are not. We present empirical evidence on effects of perceived threat of entry on profitability. Using information from managers about how they assess the existence of entry barriers a strong impact of these assessments on profitability is confirmed. The number and the relative size of competitors also exert considerable effects. We find no statistically significant relation between the perceived threat of entry and the actual number of firms if the size of the relevant market is taken into account.

Keywords: Barriers to Entry, Profitability, Discrete Regression Models

JEL Classification: L13, L25, C25

Suggested Citation

Heger, Diana and Kraft, Kornelius, Barriers to Entry and Profitability (2008). ZEW - Centre for European Economic Research Discussion Paper No. 08-071, Available at SSRN: https://ssrn.com/abstract=1268245 or http://dx.doi.org/10.2139/ssrn.1268245

Diana Heger (Contact Author)

IHS Economics ( email )

Bleichstr. 1
Frankfurt/Main
Germany

Kornelius Kraft

University of Dortmund - Department of Economics ( email )

D-44221 Dortmund
Germany
+49 231 755-3152 (Phone)
+49 231 755-3155 (Fax)

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

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