ACCA Applied Knowledge · Business and Technology · Competitive factors
Which of the following is most likely to REDUCE the threat of new entrants into an industry?
Strong economies of scale enjoyed by existing firms reduce the threat of new entrants. Incumbents have lower unit costs, so newcomers starting small would be at a cost disadvantage. Low capital needs, easy distribution access and low switching costs all make entry easier.
- ALow capital requirements to start trading
- BStrong economies of scale enjoyed by existing firmsCorrect
- CEasy access to established distribution channels
- DLow customer switching costs between brands
Explanation
Economies of scale give incumbents lower unit costs, so a small new entrant cannot compete on price. The other options are barriers that are low, making entry easier.
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