Question

Product differentiation and brand loyalty raise the bar for would-be industry entrants who would be required to make substantial investments in research or advertising.

A. True
B. False

Answer 1

It is true that product differentiation and brand loyalty create significant entry barriers for new competitors in a market, requiring substantial investments in research and advertising to challenge established brands.

Step-by-step explanation:

The statement is True. Product differentiation and brand loyalty indeed create barriers for new entrants into a market. Because established companies like Coca-Cola and Pepsi have significant brand recognition and customer loyalty, they have set a high standard for any new competitors. A new entrant would need to invest heavily in research and advertising to match these established brands. This is particularly challenging when these incumbents have large advertising budgets that serve to solidify their market dominance and discourage competition. Therefore, product differentiation and brand loyalty can greatly increase the costs and risks for new industry entrants, making it difficult for them to enter the market successfully.