ACCA Applied Knowledge · Business and Technology · Competitive factors
Which of the following is a recognised barrier to entry that protects existing firms in an industry from new competitors?
Economies of scale enjoyed by established firms are a barrier to entry, because incumbents have lower unit costs that new entrants cannot easily match. Low capital requirements and weak brands make entry easier, and substitutes are a separate competitive force, not an entry barrier.
- AEconomies of scale enjoyed by established firmsCorrect
- BMany substitute products available to customers
- CLow capital requirements to start production
- DWeak brand identity among existing firms
Explanation
Economies of scale give incumbents lower unit costs, so a new entrant would have to enter at large scale or accept a cost disadvantage. Low capital needs and weak brands make entry easier, and substitutes are a separate force rather than an entry barrier.
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