NISM Certifications · NISM-Series-XV: Research Analyst · Industry Analysis
Which of the following is generally regarded as a barrier to entry that protects incumbent firms in an industry?
Significant economies of scale enjoyed by existing firms act as a barrier to entry. Incumbents have lower unit costs, so new entrants must either invest heavily to match scale or accept a cost disadvantage. Low capital needs, open distribution and no licensing lower barriers.
- ALow capital requirements
- BSignificant economies of scale enjoyed by existing firmsCorrect
- CEasy access to distribution channels for new firms
- DAbsence of regulatory licensing
Explanation
Economies of scale let incumbents produce at lower unit cost, so a new entrant must come in at large scale or accept a cost disadvantage. Low capital needs, easy distribution access and no licensing all make entry easier.
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