Identifying new entrants is important because they can threaten the market share of existing competitors.
One reason new entrants pose such a threat is that they bring additionalproduction capacity.
Unless the demand for a good or service is increasing, additional capacity holds consumers’ costs down, resulting in less revenue and lower returns for competing firms.
new entrants have a keen interest in gaining a large market share
new competitors may force existing firms to be more efficient and to learn how to compete in new dimensions
The likelihood that firms will enter an industry is a function of two factors:
barriers to entry
retaliation expected from current industry participants
Entry barriers make it difficult for new firms to enter an industry and often place them at a competitive disadvantage even when they are able to enter.
high entry barriers tend to increase the returns for existing firms in the industry and may allow some firms to dominate the industry.
firms competing successfully in an industry want to maintain high entry barriers in order to discourage potential competitors from deciding to enter the industry
