Barriers to entry refer to the aspects in an industry that make it difficult for new firms to enter into the industry and make profits. Some of the examples of barriers to entry include patents, brands, regulation, economies of scale and control of scarce resources. Non-price barriers refer to those aspects that are not price-related.
McDonald’s has erected some barriers to entry to discourage other new firms from entering the market for their products. Use of its distribution networks is an example of how McDonald’s has erected a non-price barrier to entry. The company has taken several decades to build its vast distribution network to such a point that much of the world is nearly covered by its outlets. Entry of a new firm to the new market will be extremely difficult because McDonald’s has established itself out there and new entrants will need extremely much capital outlay to reach the market covered by McDonald’s (Lashley, 23).
Economies of scale is also another means that acts as a barrier to entry enjoyed by McDonald’s. The size of McDonald’s is constantly increasing, and so are its operations. All these are happening when the average total cost for the firm is declining because of the economies of scale it enjoys. New firms will be scared away by the high total costs of operation, and this is not a concern for McDonald’s since its average total cost is low ((Onkvisit &John, 76).
Advertising is another barrier to entry that McDonald’s has erected. The company spends the highest amount of resources in marketing than any other food restaurant in the U.S. It is through advertising that the firm can deliver the newest information to most of its customers. This is in contrast to other competing firms that cannot afford such resources to advertise and reach its customers (Onkvisit &John, 72).
Finally, McDonald’s has used branding to prevent other firms from entering the market. The brand is so large that other firms developing other brands to match McDonald’s' brand can be very difficult. On top of that, the prefix "Mc" is a trademark only used by McDonald’s and several legal cases involving trademark infringements have been witnessed (Kroc & Robert, 45).
Works Cited
Kroc, Ray, and Robert Anderson. Grinding it out: The making of McDonald's. Macmillan, 2012.
Lashley, Conrad. The case of McDonald’s restaurants limited. Eds. C. Lashley, and A. Morrison. Butterworth-Heinemann: Oxford, 2009.
Onkvisit, Sak, and John J. Shaw. "Service marketing: Image, branding, and competition." Business Horizons 32.1 (2009): 13-18.
