NISM Certifications · NISM-Series-XV: Research Analyst · Industry Analysis
Which of the following is a typical feature of an industry with high barriers to entry, such as telecom spectrum-based services?
High-barrier industries have large capital requirements and licensing needs that deter new competitors, which protects incumbents' profitability. Free entry, homogeneous products and zero long-run profit describe highly competitive industries, not those with strong entry barriers.
- ALarge capital requirements and licensing needs deter new competitors, supporting incumbent profitabilityCorrect
- BLow capital needs allow many firms to enter freely
- CProducts are fully homogeneous and prices are set by the market
- DProfit margins are always zero in the long run
Explanation
High barriers such as heavy capital investment, licences and economies of scale limit new entrants, which protects incumbents' margins. Free entry and zero long-run profits describe perfectly competitive conditions, the opposite of the situation described.
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