ACCA Strategic Professional · Strategic Business Leader · Competitive forces
Tarn Logistics operates in a country where a new regulation will remove the requirement for a government licence to run freight services. Everything else in the industry is unchanged. According to the five forces model, what is the most likely effect?
The threat of new entrants increases. A government licence is a legal barrier to entry, and removing it makes it easier and cheaper for new firms to start freight services, so incumbents like Tarn face greater potential competition.
- AThe threat of new entrants increases because a legal barrier has been removedCorrect
- BThe threat of substitutes decreases
- CThe bargaining power of buyers decreases
- DThe threat of new entrants decreases because competition is now fairer
Explanation
A licence requirement is a government or legal barrier to entry. Removing it makes entry easier, so the threat of new entrants rises. The other forces are not directly altered by the change described.
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