Barriers to entry and market strategy: a literature review and a proposed model

Abstract

Purpose The purpose of this paper is to review previous research and to propose a model for the impact of barriers to entry on the market strategy of an entrant firm, where product/market scope and product differentiation are central strategy components. The paper asks, what is the impact of barriers on market strategies of entrants? Are early and late entrants affected in different ways? Design/methodology/approach A model and propositions are developed‐based on a review of previous research. The model applies the contingency perspective and company cases exemplify the model. Findings It is proposed that a firm that enters a market late and faces extensive barriers would choose a broader product/market scope and differentiate its products to a larger extent than an early entrant. It is also proposed that incumbents' market strategies indirectly affect the market strategy of an entrant firm as incumbents' market strategies interact with barriers, and the effects are due to entry timing. Research limitations/implications The study contributes theoretically as it extends current knowledge of the impact of barriers to entry on strategy. Management of entrant firms are advised to strive for a fit between barriers and market strategy and consider the propositions. Originality/value The model and the propositions concern barrier effects on two key components of the market strategy of an entrant firm: product/market scope and product differentiation. Another important value is that the model accounts for interactions between incumbent strategies and barriers to entry, and effects on the market strategy of an entrant firm.

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