ACCA Applied Knowledge · Business and Technology · Competitive factors
Which of the following would most likely REDUCE the threat of new entrants into an industry?
Significant economies of scale enjoyed by existing firms reduce the threat of new entrants. Incumbents produce at lower unit cost, so a newcomer starting small cannot compete on price. Low start-up capital and easy access to distribution are the opposite, as they lower barriers and encourage entry.
- ALow capital requirements to start up
- BSignificant economies of scale enjoyed by existing firmsCorrect
- CEasy access to distribution channels
Explanation
Economies of scale give incumbents a cost advantage that new entrants cannot match at small volumes, so they act as a barrier to entry. Low capital needs and easy distribution access lower barriers and so increase the threat of entry.
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