Chapter 68, Problem 2CYU

To determine

To state: The reasons for which a successful brand name is considered a barrier to entry.

Explanation of Solution

Yes, this statement is true because a huge amount of advertisement costs is included in creating a successful and well-known brand. In case there are already famous and branded firms in the market, then the new firms have to spend a lot of money to establish their brand and for making advertisements that would attract customers.

A successful brand name in a market means that there are loyal consumers for that brand. This loyalty would act as the barrier to entry for new firms. In a market where brand names and product differentiation are used to determine the market power, any new firm would find it very difficult to enter the market and would have to spend a huge amount to establish their business and name in the market.