Threat of New Entrants

• What does it mean by the threat of new entrants?

  The likelihood of new businesses entering the industry and competitng with existing businesses
• How does a higher threat of new entrants affect profits of current businesses?

  Lower profitability due to increased competition
• What are factors that increase the threat of new entrants?

  • Low start-up costs (e.g. e-commerce reduce costs to entry)
  • Weak branding among existing firms
  • No regulatory barriers (e.g. no patents)
  • Technology that simplifies production or distribution
• What are factors that decrease the threat of new entrants (barriers to entry)?

  • Economies of scale - existing businesses can product at lower costs
  • High capital investment requirements (e.g. research and development)
  • Exisiting brand loyalty
  • Patents
  • Access to distribution networks
• What are the strategic implications if there is a high threat of new entrants for existing businesses in the industry?

  • Firms may invest in branding to build customer loyalty
  • Use patents to maintain barriers
  • Improve product quality by ensuring quality assurance
  • Gain economies of scale