Classification and Examples
Michael Porter classifies the markets into four general cases:
- High barrier to entry and high exit barrier (for example, telecommunications, energy)
- High barrier to entry and low exit barrier (for example, consulting, education)
- Low barrier to entry and high exit barrier (for example, hotels, ironworks)
- Low barrier to entry and low exit barrier (for example, retail, electronic commerce)
- Markets with high entry barriers have few players and thus high profit margins.
- Markets with low entry barriers have lots of players and thus low profit margins.
- Markets with high exit barriers are unstable and not self-regulated, so the profit margins fluctuate very much over time.
- Markets with a low exit barrier are stable and self-regulated, so the profit margins do not fluctuate much over time.
The higher the barriers to entry and exit, the more prone a market tends to be a natural monopoly. The reverse is also true. The lower the barriers, the more likely the market will become perfect competition.
Read more about this topic: Barriers To Entry
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