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CA Intermediate · Financial Management and Strategic Management · Strategic Analysis: External Environment

Several new Indian firms plan to enter the budget air-travel market. They find that an incumbent airline can cut fares sharply, that aircraft leasing needs very heavy capital, and that scarce airport slots are controlled by existing carriers. In Porter's Five Forces, which force do these barriers chiefly weaken?

These barriers reduce the threat of new entrants. High capital needs, expected retaliation by incumbents and restricted access to scarce airport slots make entry costly and risky, so fewer new competitors enter, which is the entry-barrier dimension of Porter's Five Forces.

  1. AThreat of new entrantsCorrect
  2. BBargaining power of buyers
  3. CThreat of substitutes
  4. DBargaining power of suppliers

Explanation

Retaliatory pricing by incumbents, high capital requirements and restricted access to distribution (slots) are classic entry barriers. These reduce the threat of new entrants. Buyer power would concern customers' ability to push prices down, which is not described.

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