In a competitive market, what is the effect of high barriers to entry on potential entrants?

In a competitive market, high barriers to entry serve as significant obstacles for potential entrants looking to start a new business. These barriers can take many forms, such as substantial capital requirements, stringent regulations, complex licensing processes, and established brand loyalty among customers for existing players. When barriers are high, it becomes challenging for new companies to overcome these hurdles, leading to a discouragement of new competitors from entering the market.

As a result, the market tends to have fewer competitors, allowing established businesses to maintain their market share and pricing power. This discouragement is crucial to understand because it directly impacts market dynamics, competitive behavior, and innovation levels, often leading to less competition and potentially higher prices for consumers.