How can government policy act as a barrier to entry?

Government policy can act as a barrier to entry primarily through regulations, tariffs, and paperwork. These mechanisms often create additional hurdles for new businesses looking to enter an industry. Regulations might require stringent compliance with safety standards, environmental laws, or specific qualifications that can be costly and time-consuming for new entrants to satisfy.

Tariffs can impose additional costs on imported goods, affecting pricing strategies and making it more challenging for new local companies to compete with established firms that have existing supply chains or pricing advantages. The requirement for extensive documentation can also slow down the entry process, requiring time and resources that new businesses may not have readily available.

In contrast, increasing customer demand for products typically serves to encourage new entries into the market as it signals potential profitability. Promoting competition within the market is generally a goal of governmental policy to enhance consumer choice and market efficiency, which does not act as a barrier but rather as a catalyst for new entrants. Establishing low-interest rates usually aims to foster economic growth by making borrowing cheaper, thus facilitating business expansion rather than creating barriers to entry.