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CMA Intermediate · Operations Management and Strategic Management · Strategic Analysis and Strategic Planning

Which of the following would normally RAISE the barriers to entry in an industry, thereby reducing the threat of new entrants?

Significant economies of scale and high capital requirements raise entry barriers. A newcomer must invest heavily and operate at large scale to match incumbents' unit costs, or suffer a cost disadvantage. Easy distribution access, low switching costs and weak brand loyalty instead make entry easier.

  1. AEasy access to distribution channels
  2. BSignificant economies of scale and high capital requirementsCorrect
  3. CLow switching costs for customers
  4. DUndifferentiated products with no brand loyalty

Explanation

Large economies of scale and heavy capital requirements force a new entrant to come in big or accept a cost disadvantage, so they deter entry. The other three options lower barriers: open distribution, low switching costs and weak brand loyalty all make entry easier.

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