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CFA Level I · CFA Level I Exam · Industry and Competitive Analysis

Which development would most likely reduce the threat of new entrants in an industry?

Rising economies of scale would most likely reduce the threat of new entrants. A newcomer would need to enter at large scale or accept higher unit costs than incumbents, which is a barrier, while removing licenses or lowering capital needs makes entry easier.

  1. ARemoval of regulatory licensing requirements
  2. BRising economies of scale that make large production necessary for low unit costsCorrect
  3. CFalling capital requirements because of cheaper technology

Explanation

Economies of scale force a new entrant to come in large, risking heavy losses, or accept a cost disadvantage, which deters entry. Removing licensing and lowering capital needs lower barriers and raise the entry threat.

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