CA Intermediate · Financial Management and Strategic Management · Strategic Analysis: External Environment
Himalaya Electric, an electric scooter maker, is assessing its position. Which of the following observations is an example of a barrier to entry that protects incumbents in its industry from new entrants?
Economies of scale and a large dealer network are entry barriers, since a newcomer must invest heavily to match cost and reach. The other statements describe buyer switching, rivalry among equal competitors and substitutes, which are different forces and not barriers to entry.
- AEstablished players enjoy economies of scale and a large dealer network that a newcomer would need heavy investment to matchCorrect
- BCustomers can easily switch to a rival scooter brand at no cost
- CMany rivals are of equal size and compete on price
- DPetrol scooters can satisfy the same transport need
Explanation
Economies of scale and established distribution are classic entry barriers, raising the cost of entry for newcomers. Easy switching is a buyer power or low switching cost point, equal rivals indicate rivalry, and petrol scooters are substitutes. These do not directly deter entrants.
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