Barriers to entry and market strategy

Barriers to entry and marketstrategy: a literature review

and a proposed modelAnders Pehrsson

School of Management and Economics, Vaxjo University, Vaxjo, Sweden

Abstract

Purpose – The purpose of this paper is to review previous research and to propose a model for theimpact of barriers to entry on the market strategy of an entrant firm, where product/market scope andproduct differentiation are central strategy components. The paper asks, what is the impact of barrierson 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 ofprevious research. The model applies the contingency perspective and company cases exemplify themodel.

Findings – It is proposed that a firm that enters a market late and faces extensive barriers wouldchoose a broader product/market scope and differentiate its products to a larger extent than an earlyentrant. It is also proposed that incumbents’ market strategies indirectly affect the market strategy ofan entrant firm as incumbents’ market strategies interact with barriers, and the effects are due to entrytiming.

Research limitations/implications – The study contributes theoretically as it extends currentknowledge of the impact of barriers to entry on strategy. Management of entrant firms are advised tostrive 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 componentsof the market strategy of an entrant firm: product/market scope and product differentiation. Anotherimportant value is that the model accounts for interactions between incumbent strategies and barriersto entry, and effects on the market strategy of an entrant firm.

Keywords Market entry, Marketing strategy, Competitors

Paper type Literature review

IntroductionBarriers to entry have been a popular field of research since the seminal work of Bain(1956). Barriers are obstacles preventing entrant firms from being established in aparticular market (Porter, 1980). However, despite the practical and theoreticalimportance of the matter, we still have only limited understanding of the impact ofbarriers on the market strategy of an entrant firm.

A deeper empirical exploration of the issue calls for a reliable model that clarifiesexpected relationships. An empirical example is the comprehensive work that takesplace within the European Union in order to create unified rules for internationalcompetition and reduce the impact of barriers originating from government regulations.

The current issue and full text archive of this journal is available at

www.emeraldinsight.com/0955-534X.htm

The author is grateful for valuable comments received from two anonymous reviewers ofEuropean Business Review, and the financial support provided by The Nicolin Foundation CN70of the Swedish Committee of the International Chamber of Commerce.

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Received December 2007Revised January 2008,February 2008Accepted February 2008

European Business ReviewVol. 21 No. 1, 2009pp. 64-77q Emerald Group Publishing Limited0955-534XDOI 10.1108/09555340910925184

Industries such as telecommunications are subject to these unification processes(Pehrsson, 2001). A general aim is to encourage the establishment of both domesticcompetitors and competitors stemming from other countries (Karlsson, 1998). But whatis the expected impact of barriers on market strategies of entrants? Are early and lateentrants affected in different ways?

In theoretical terms, we need further knowledge of a relation between conditionsexternal to the firm and the firm strategy, and, therefore, application of the contingencyperspective (Hambrick, 1983; Peteraf and Reed, 2007) is appropriate. The central viewis that a fit between external conditions and firm strategy provides a basis forcompetitive advantage and high performance (Miller, 1996).

According to the review by Peteraf and Reed (2007), an earlier central criticism ofcontingency theory was that contingency research was reductionist (Meyer et al., 1993),and empirical models did not account for the impact of interactions among centralelements. However, recent studies on internal alignment focus on interaction effectsamong firm attributes and impact on firm performance (Kauffman, 1993; Levinthal,1997). Yet, we still have very limited knowledge of interactions among externalconditions and the impact on firm strategy.

This paper applies the contingency perspective and focuses on the impact ofbarriers to entry on the market strategy of early and late entrants. The purpose is toreview previous research and to propose a model for the impact of barriers on strategywhere product/market scope and product differentiation are central strategycomponents. The resulting model addresses external firm conditions and proposesdirect effects of exogenous and endogenous barriers and indirect effects of incumbents’market strategies. These constitute the frame for barriers that originate fromincumbents’ behavior, and incumbent strategies assumingly interact with barriers toentry.

Although, for example, the performance impact of barriers to entry has been widelyinvestigated (Marsh, 1998), only a few studies have focused on the impact on themarket strategy of entrant firms. Robinson and McDougall (2001) studied entrants andfound that the negative performance effects of three barriers (scale effects, capital need,and product differentiation) were particularly important when the product/marketscope was narrow. Further, Pehrsson (2001) observed that deregulation in thetelecommunications industry caused adjustments of the product/market scope ofmarket entrants. Finally, Han et al. (2001) and Salavou et al. (2004) found that a need forcapital stimulated the innovativeness and product differentiation of entrants.

We therefore need to continue to study the impact of barriers on the product/marketscope and product differentiation of market entrants. More precisely, there is a lack ofknowledge of direct and indirect barrier effects on entrants’ product/market scope andproduct differentiation. The fact that competitors may constitute a primary source ofbarriers has largely been neglected, and incumbents’ market strategies most probablyindirectly affect the strategy of an entrant firm. Competitors are crucial here as theydemonstrate certain market strategies and thereby create customer loyalties and otherbarriers (Porter, 1980). Also, the literature indicates that the effects are due to entrytiming (Karakaya and Stahl, 1989), and the effects on the strategy of an early entrantmay not be the same as those for a late entrant.

The paper is organized in this way: In Section 2, I review previous research onbarriers to entry and the strategy impact of barriers; in Section 3, I present the model

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and propositions about relationships in the model; Section 4 presents illustrativecompany cases; conclusions and implications follow in Section 5.

Literature reviewThis section of the paper first presents important exogenous and endogenous barriersto entry that have been observed by scholars. The section then reviews previousstudies on the impact of barriers on product/market scope and product differentiation,and the impact on entry timing.

Important barriers to entryA barrier to entry can be categorized as either exogenous or endogenous (Shepherd,1979). Exogenous barriers are those that are embedded in the underlying marketconditions and, in principle, firms are not able to control exogenous barriers. On thecontrary, endogenous barriers are created by the established firms through theirmarket strategies and their competitive behavior and are thus based on incumbents’reactions to new entrants’ efforts to become established. However, Gable et al. (1995)observed that frequently the barrier types are mutually reinforcing, and they may bedifficult to interpret.

Table I lists important barriers to entry that have been observed in the literature,with studies cited by author and publication date.

As regards the exogenous barriers, incumbents’ cost advantages are consideredimportant by several authors (Gable et al., 1995; Han et al., 2001). This barrier means thatincumbents may possess absolute or variable cost advantages, forcing the entrant firmto achieve scale effects and low costs. Incumbents’ product differentiation (Pehrsson,2004; Schlegelmilch and Ambos, 2004) is another important barrier as it creates loyaltiesand relations among buyers and established sellers, and accompanying obstacles for theentrant trying to access customers (Johansson and Elg, 2002).

Furthermore, the extensive need for capital in order to be firmly established in amarket is an important exogeneous barrier emphasized by many authors (Harrigan,1981; Siegfried and Evans, 1994), and the importance is also valid for customers’switching costs (Gruca and Sudharshan, 1995; Karakaya and Stahl, 1989). This barrieris due to the costs that any potential customer faces trying to switch from one supplierto another. For example, costs may be allocated to employee retraining or changes inproduct design.

Available distribution channels might not be anticipated by the entrant firm, orthey may be controlled by competitors, creating customer access obstacles (Han et al.,2001; Pehrsson, 2004). Other barriers may include incumbents’ brand loyalty (Krouse,1984), costs independent of scale (Karakaya, 2002; Porter, 1980), government policy(Delmas et al., 2007; Russo, 2001), number of competitors (Harrigan, 1981), sellerconcentration (King and Thompson, 1982), and need for research and development(Schmalensee, 1983) including costs for adaptating technology to local marketconditions (Pehrsson, 2004).

Endogenous barriers are created by the competitive behavior of incumbent firmsin accordance with their market strategies. Important endogenous barriers mayoriginate from excess capacity. This is generally accompanied by increasedadvertising or promotional activity (Demsetz, 1982; Gable et al., 1995) or pre-emptivepricing resulting in price competition (Guiltinnan and Gundlach, 1996; Simon, 2005).

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It is thus appropriate to view endogenous barriers as established firms’ reactions tonew entrants (Karakaya and Stahl, 1989; Yip, 1982). In fact, incumbents may deter theentry of newcomers simply by creating expectations of fear for the incumbent’spost-entry reaction (Karakaya and Stahl, 1989).

Important barriers to entry Examples of studies

Exogenous barriersIncumbents’ absolute or variable costadvantages

Bain (1956), Day (1984), Gable et al. (1995), Han et al.(2001), Harrigan (1981), Henderson (1984), Karakaya andStahl (1989), Lieberman (1987), Mann (1966), Porter (1980),Scherer (1970), Schmalensee (1983), Siegfried and Evans(1994), Weizsacker (1980), Yip (1982)

Incumbents’ product differentiation Bain (1956), Bass et al. (1978), Caves (1972), Gable et al.(1995), Hofer and Schendel (1978), Johansson and Elg(2002), Karakaya (2002), Karakaya and Kerin (2007),Karakaya and Stahl (1989), Makadok (1998), Mann (1966),Pehrsson (2004), Porter (1980), Robinson and McDougall(2001), Schlegelmilch and Ambos (2004), Schmalensee(1983), Siegfried and Evans (1994)

Incumbents’ brand image Krouse (1984)Need for capital for the establishment Bain (1956), Baumol and Willig (1981), Eaton and Lipsey

(1980), Gable et al. (1995), Han et al. (2001), Harrigan (1981),Karakaya (2002), Karakaya and Kerin (2007), Mann (1966),Porter (1980), Salavou et al. (2004), Siegfried and Evans(1994)

Customers’ switching costs Gruca and Sudharshan (1995), Han et al. (2001), Karakayaand Stahl (1989), McFarlan (1984), Pehrsson (2004), Porter(1980); Stigler and Becker (1977)

Access to distribution channels Gable et al. (1995), Han et al. (2001), Karakaya and Stahl(1989), Pehrsson (2004), Porter (1980)

Costs independent of scale Karakaya (2002), Karakaya and Kerin (2007), Porter(1980),Scherer (1970)

Government policy Beatty et al. (1985), Bonardi (1999), Delmas and Tokat(2005), Delmas et al. (2007), Dixit and Kyle (1985), Gableet al. (1995), Grabowski and Vernon (1986), Haveman(1993), Karakaya and Stahl (1989), Marsh (1998), Moore(1978), Porter (1980), Pustay (1985), Russo (2001)

Number of competitors Harrigan (1981)Seller concentration Bain (1956), Caves (1972), Crawford (1975), King and

Thompson (1982), Mann (1966)Need for research and development orpatent

Ghadar (1982), Harrigan (1981), Mansfield et al. (1981),Pehrsson (2004), Reinganum (1983), Schmalensee (1983)

Endogenous barriersIncumbents’ increased advertising Brozen (1971), Comanor and Wilson (1967), Demsetz

(1982), Gable et al. (1995), Harrigan (1981), Netter (1983),Reed (1975), Reekie and Bhoyrub (1981), Spence (1986)

Incumbents’ increased sales promotion Gable et al. (1995), Williamson (1963)Incumbents’ price competition Gable et al. (1995), Guiltinnan and Gundlach (1996),

Needham (1976), Simon (2005), Smiley and Ravid (1983)Incumbents’ reactions in general Gable et al. (1995), Karakaya and Stahl (1989), Needham

(1976), Yip (1982)

Table I.Studies of important

exogenous andendogenous barriers to

entry


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However, Gable et al. (1995) found that exogenous and endogenous barriers aremutually reinforcing. They studied entry barriers in retailing and found thatincumbents frequently increased advertising and sales promotion when reacting tomarket entrants. These measures enhanced the degree of product and servicedifferentiation attributed to the incumbent, while the measures also provided a methodfor an existing retailer to increase the costs of entry to a potential competitor. Theobserved endogenous barriers of increased advertising and sales promotion thusreinforce the exogenous barriers of capital need and product differentiation.

Further, a number of studies (Karakaya, 2002; Karakaya and Kerin, 2007; Karakayaand Stahl, 1989; Siegfried and Evans, 1994) have explored the relative importanceof individual barriers. Karakaya (2002) examined the importance of 25 potentialbarriers to entry in industrial markets. The majority of the executives in the surveyconsidered the most important barriers to be incumbents’ cost advantages and the needfor capital to enter markets.

The impact of barriers on strategyResearchers have studied the impact of barriers to entry on two strategy components,namely product/market scope (Bonardi, 1999; Delmas and Tokat, 2005; Haveman,1993; Pehrsson, 2001, 2007; Robinson and McDougall, 2001), and productdifferentiation (Delmas et al., 2007; Russo, 2001; Schlegelmilch and Ambos, 2004)including innovativeness (Han et al., 2001; Salavou et al., 2004). Table II summarizeskey findings of the studies of strategies of market entrants and incumbents.

As regards product/market scope, Pehrsson (2007) studied perceptions of expansionbarriers in 191 subsidiaries of incumbent Swedish manufacturing firms in Germany,the United States and the UK. He found that the impact of barriers was due to thebreadth of the product/market scope of the firms. Hence, obstacles to access customersaffect performance in a negative way if the firm has a narrow product/market scope.One reason why the obstacles are not significant if the scope is broad may be thatdifferent customer types and delivered products in this context are associated withmore degrees of freedom in choosing customers. Problems in accessing a certaincustomer type may thus be balanced against limited problems regarding other types.

Robinson and McDougall (2001) established a similar pattern. They studied themoderating effect of product/market breadth on the relationship between entrybarriers and performance of 115 new ventures. Three barriers were closely studied:economies of scale, capital need, and product differentiation. It was found that thenegative effect of capital need on return on sales was smaller for ventures pursuing abroad scope. Further, the negative effects of all barriers were smaller for broad-scopeventures as regards shareholder wealth.

Government policy changes manifested by, for example, deregulation or otherinstitutional changes stimulate adjustments of the product/market scope ofincumbents (Bonardi, 1999; Delmas and Tokat, 2005; Haveman, 1993; Pehrsson,2001). Haveman (1993) showed that many firms in the savings and loans industry hadexpanded into new areas as a result of deregulation. Further, Pehrsson (2001) foundthat choices of customers made by both incumbents and entrant firms followedderegulations in the British and Swedish telecommunications industries.

As regards the product differentiation component of market strategy, Han et al.(2001) and Salavou et al. (2004) found that market entrants’ innovativeness reduced the

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impact of capital need. A firm’s innovativeness reflects its way of pursuing productdifferentiation relative to competitors (Kustin, 2004).

The literature also addresses changes in barriers to entry due to deregulation andtheir effects on incumbents’ differentiation (Delmas et al., 2007; Russo, 2001;Schlegelmilch and Ambos, 2004). Delmas et al. (2007) observed a variety ofdifferentiation efforts in response to deregulation in the US electric utility industry,while Schlegelmilch and Ambos (2004) studied strategic options in such industries. Inparticular, Russo (2001) found that technology differentiation was a common effect ofderegulation in the utility industry. Delmas et al. (2007) advocate that, in fact,differentiation is common in industries that is subject to deregulation.

The impact of barriers on entry timingMakadok (1998) and Pehrsson (2004) underscore that the entry timing advantages offirst- and early-movers seem to be resistant to erosion by the entry of additionalcompetitors in a market. Once a new competitor has entered the market, it is difficult tomatch the performance of the incumbents due to extensive customer loyaltiesestablished previously. For the entrant firm this creates severe obstacles to customeraccess.

Karakaya and Stahl (1989) studied the effects of barriers on the timing of market entryof 49 firms delivering industrial goods and consumer goods. The researchers particularlyfound that switching costs of potential customers is perceived as more important forlate entry than early entry in both industrial goods and consumer goods markets.

Studies BarriersStrategycomponent Key findings

Studies of entrant firmsRobinson and McDougall(2001)

Incumbents’ costadvantages (scale effects),capital need, and productdifferentiation

Product/marketscope

Larger negativeperformance effect whenthe scope of an entrantfirm is narrow

Pehrsson (2001) Government policy Product/marketscope

Deregulations causeadjustments in theproduct/market scope ofan entrant firm

Han et al. (2001), Salavouet al. (2004)

Capital need Productdifferentiation

Capital need stimulatesinnovativeness of anentrant firm

Studies of incumbentsPehrsson (2007) Product differentiation,

switching costs, andchannel access

Product/marketscope

Negative performanceeffects when the scope ofan incumbent is narrow

Bonardi (1999), Delmasand Tokat (2005),Haveman (1993)

Government policy Product/marketscope

Deregulation causesadjustments in theproduct/market scope ofan incumbent

Delmas et al. (2007), Russo(2001), Schlegelmilch andAmbos (2004)

Government policy Productdifferentiation

Deregulation causestechnology and otherdifferentiations of anincumbent

Table II.Studies of the impact of

market entry barriers onmarket strategy


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This finding supports the notion that late market entrants will face extensive obstacles toaccess customers due to previous loyalties between sellers and buyers.

A model of the impact of entry barriers on strategyThe model presented in this section proposes relationships between barriers to entry,incumbents’ market strategies and the market strategy of an entrant firm (Figure 1). Themodel applies the contingency perspective (Hambrick, 1983; Peteraf and Reed, 2007) andproposes that an entrant firm’s market strategy is contingent on the external conditionsof barriers to entry (P1-2 in Figure 1). It is also assumed that competitors constitute amain source of barriers; therefore, the model proposes indirect effects and interactionsbetween incumbents’ market strategies and barriers (P3). Further, entry timing isimportant; the propositions suggest that strategies of early and late entrants differ.

This section first defines the key concepts of the model and continues withmotivations and presentations of the propositions.

The concepts in the modelThe term “barriers to entry” stems from industrial organization literature and refers toobstacles that firms have to face when they try to establish themselves in a market(Porter, 1980). Advantages of incumbent firms established earlier correspond to theextent to which the incumbents can raise their prices above a theoretical equilibriumwithout attracting other firms to enter the market (Bain, 1956). Barriers are exogenousor endogenous and are mutually reinforcing (see the literature review above).

Entrant firms and incumbents demonstrate certain market strategies.Miller (1987) found that the dominant content components of strategy were

Figure 1.A model of the impact ofstrategy on market entrybarriers (P1-3 indicatepropositions)

P1-2

P3

Barriers to entry

Exogenous andendogenous barriers

Market strategy of anearly or late entrant

firm

Product/market scope,product differentiation

Incumbents’ marketstrategies

Product/market scope,product differentiation

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product/market scope, product innovation, differentiation, and cost control.Product/market scope corresponds to the breadth of business activities and ismanifested by the breadth of the range of product types and customer types. Asproduct innovation is a way of differentiating the product in relation to competingproducts, I include innovation in product differentiation (Kustin, 2004). Further, as costcontrol is an ingredient of price, and customers are generally more concerned withprices than firm costs, prices are frequently subject to differentiation (Porter, 1980).Therefore, product differentiation in the model also includes pricing.

However, product differentiation does not only refer to the physical product core.Usunier (1993) suggests that services linked to products such as after-sales services arecentral to differentiation, and Pehrsson (2006) further emphasizes flexibility attributes.These attributes combine with other attributes in order to meet individual customerneeds, and include, for example, solutions to customer problems and distributionfeatures.

Differentiating products in relation to products of competitors may thus give thefirm competitive advantages. In essence, Porter (1980) convincingly argues thatdifferentiation is a way of creating layers of insulation against competitive warfare andincreases the odds of achieving high financial performance.

Direct effects of barriers to entryPehrsson (2007) and Robinson and McDougall (2001) found that the effects of barrierswere less severe if the product/market scope of a market entrant was broad. Based onthe findings, the researchers argue that product/market breadth of market entrantsgenerally moderates the relationship between entry barriers and performance.Theoretically, a market entrant that has to face extensive barriers to entry would prefera broad product/market scope. In that way, the entrant may be able to exploit thedegrees of freedom that accompany the broad scope, and balance obstacles inaccessing a certain customer type against obstacles relating to other types.

However, research has shown that late market entrants tend to be exposed to morecomprehensive barriers than early entrants (Makadok, 1998; Pehrsson, 2004). Inparticular, customer loyalties and customers’ switching costs (Karakaya and Stahl,1989) constitute key competitive advantages of early entrants. A late market entrantwould, therefore, theoretically have to face more severe obstacles in trying to accesscustomers than would an early entrant:

P1. A firm that enters a market late and has to face extensive barriers will choosea broader product/market scope than an early entrant.

In accordance with the results of Han et al. (2001) and Salavou et al. (2004), marketentrants frequently use product innovations to overcome market entry barriers. Asinnovativeness manifests product differentiation, it is logical to propose that a marketentrant may use product differentiation in order to respond to barriers, and thatcomprehensive differentiation efforts follow extensive barriers. As a late entrant istheoretically exposed to more extensive barriers than an early entrant, this leads to thesecond proposition:

P2. A firm that enters a market late and has to face extensive barriers willdifferentiate its products to a larger extent than an early entrant.


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Indirect effects of barriers to entryP1 and P2 do not pay attention to indirect effects, crucial interactions among barriersto entry and other important conditions external to the entrant firm. However, we canexpect that barriers interact with incumbents’ market strategies. This expectationrelies on the necessity of observing competitors as they pursue certain marketstrategies, and are able to create customer loyalties and other barriers (Porter, 1980). Ifwe pay attention to incumbents, a strategy that promotes the development of brandloyalty, for example, focuses on a factor that create barriers (Krouse, 1984).

Further, entry timing advantages of first- and early-movers (Makadok, 1998;Pehrsson, 2004) generally stem from the firms’ opportunities to penetrate potentialcustomers, start to differentiate products, and develop customer relationships. Ifsuccessful, the customer relationships and accompanying loyalties become effectivebarriers to competition. Theoretically, late entrants therefore have difficulty matchingthe performance of the early entrants. We may therefore propose that the interactionaffects early and late entrants in different ways:

P3. Incumbents’ market strategies indirectly affect the market strategy of anentrant firm as incumbents’ market strategies interact with barriers to entry.The effects are different for early and late entrants.

Illustrative casesDeregulation and unification of rules pertaining to firms operating telecommunicationsnetworks caused operators to reconsider their market strategies in Europe (Pehrsson,2001). Unlike many other European countries, Sweden has never legalized a monopolyfor the establishment of telecommunications networks or for the offering of services.However, Televerket (the Swedish public telecommunications administration)historically had a monopoly-like hold on many sectors of the market. Thisorganization was converted in 1993 into a company group with a parent firm, Telia. Asthere are no regulations protecting Swedish interests or restricting foreign operatorsfrom establishing themselves in the country, many firms have entered the market.

Any firm with a desire to enter the market will have to face the barrier of capitalneed in terms of the arrangement of infrastructure. For example, Tele2 entered themarket early and addressed this need for capital by cooperating with the Swedish StateRail Administration. The background for Kinnevik’s establishment of Tele2 is thatKinnevik had gained experience from mobile telephony in the USA (NetCom Systems,1994). Parallel with these activities, preparations began within traditionaltelecommunications for voice and data in the 1980s. A gateway for data traffic wasopened in 1986, and in 1989 an agreement was concluded with the Swedish State RailAdministration for joint investments in a fiber optic network. Tele2 was formed in1987 with the intention to offer stationary telephony primarily to households based onlow prices. When the deregulation of the telecommunications market accelerated in1993, Tele2 was able to act fast and reached second place after the incumbent, Telia.

Dotcom Data & Telecommunications entered the Swedish market late and had toface the extensive barriers caused by the dominance of the incumbent and earlyentrants. By the end of the 1990s, Dotcom was the only operator in the Swedish marketwith telecommunications operations that were not part of the original corporate corebusiness (Dotcom Data & Telecommunications, 1995). The product/market scope wasdominated by local data networks and included also stationary telephony, leased lines,

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office exchanges, extensive communications systems, support systems and so on.Middle-sized companies, large companies, and public administrations were the maintarget groups.

In sum, the case of Dotcom Data & Telecommunications illustrates P1. The firmwas exposed to extensive barriers due to the firm’s late market entry and chose a broadproduct/market scope. In that way, the firm was able to exploit the degrees of freedomthat accompanied the broad scope, and balance obstacles in accessing a certaincustomer type against obstacles regarding other types.

Further, Dotcom Data & Telecommunications tried to avoid price competition and,instead, strived for long-term customer relationships. As there were six phases of thedelivery chain (analysis of needs, systems design, installation, education, service, andfinancing) there were many options to conduct product differentiation. A comparisonwith the limited low-price differentiation of Tele2 illustrates P2. However, inaccordance with P3, both entrants had to face the barriers caused by the incumbent’s(Telia’s) strategy of keeping its market dominance and loyal customers.

Conclusions and implicationsDespite the limitation that there may be more important external conditions beyondincumbents’ market strategies that interact with barriers to entry, we are now able toconclude the a firm that enters a market late and has to face extensive barriersprobably would choose a broader product/market scope and differentiate its productsto a larger extent than an earlier entrant. Also, it is proposed that incumbents’ marketstrategies indirectly affect the market strategy of an entrant firm as incumbents’market strategies interact with barriers, where the effects are due to entry timing. Insum, the model extends our knowledge as it accounts for the direct impact of barriersto entry on product/market scope and product differentiation, and specifies centralconditions external to the entrant firm. Also, the model accounts for entry timingeffects.

In accordance with the contingency perspective management of entrant firms wouldbe advised to strive for a fit between barriers to entry and market strategy and therebybear in mind the proposals put forward in this paper. Of importance are not only directeffects of barriers on product/market scope and product differentiation, but also theway incumbent strategies interact with barriers. It would also be advisable for eachfirm to evaluate the relative importance of barriers and acknowledge that a late entry isgenerally accompanied by more extensive barriers than an early entry. Further, asexogenous barriers and endogenous barriers are often mutually reinforcing, attentionneeds to be paid to combined effects.

Further empirical research should be conducted in terms of applying the modeldeveloped in this paper. A suggestion for future research is to explore howmanagement perceives barriers to entry, and how this perception contributes to theemergence and sustainability of competitive advantage. Also, it would be interesting toexplore managerial knowledge of barriers in early and late phases of market entry.

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About the authorAnders Pehrsson is Professor of Business Administration at the School of Management andEconomics, Vaxjo University, Sweden. He has contributed strategy papers to Business StrategySeries, European Business Review, Journal of Business Research, Management Decision,Scandinavian Journal of Management, Strategic Change, Strategic Management Journal and anumber of books. Recent monographs are Strategy in Emerging Markets and InternationalStrategies in Telecommunications (Routledge: London, New York). Anders Pehrsson can becontacted at: [email protected]

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