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Which of the following governmental actions will increase the threat of new entrants in a​ market?

a. Implementing strict industry regulations
b. Providing subsidies to existing companies
c. Lowering entry barriers
d. Imposing high taxes on existing competitors

User Dan Menes
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1 Answer

5 votes

Final answer:

Imposing high taxes on existing competitors will likely deter new entrants rather than encourage them. Barriers to entry can be government-enforced, like licensing laws, or non-governmental, like trademarks and brand reputations.

Step-by-step explanation:

Imposing high taxes on existing competitors does not serve to increase the threat of new entrants in a market; rather, this action will likely have the opposite effect. High taxes on existing firms can reduce their profitability and ability to invest, which might act as a deterrent for new companies considering entering the market due to perceived high costs and a less attractive investment landscape.

Regarding the classification of different scenarios and their relation to barriers to entry:

  1. A city passes a law on how many licenses it will issue for taxicabs - Government-enforced barrier to entry
  2. A city passes a law that all taxicab drivers must pass a driving safety test and have insurance - Government-enforced barrier to entry
  3. A well-known trademark - Barrier to entry that is not government-enforced
  4. Owning a spring that offers very pure water - Barrier to entry that is not government-enforced
  5. An industry where economies of scale are very large compared to the size of demand in the market - This is a situation that does not directly equate to a barrier to entry enforced by the government, but it does present a structural barrier to entry
  6. A patented invention - Government-enforced barrier to entry
  7. A popular but easily copied restaurant recipe - This does not involve a barrier to entry
  8. A well-established reputation for slashing prices in response to new entry - Barrier to entry that is not government-enforced
  9. A well-respected brand name that has been carefully built up over many years - Barrier to entry that is not government-enforced

All market-based economies operate with a set of laws and regulations. Government policies, such as blocking anti-competitive mergers or deregulation, aim to strengthen competition in the market.

User Andros
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