Question

What are the factors that determine the threat of new entrants in a market?

1) Threat of new entrants (or barriers to entry)
2) Threat of substitute products or services
3) Rivalry
4) Bargaining power of buyers
5) Bargaining power of suppliers

Answer 1

The threat of new entrants in a market is determined by barriers to entry, such as legal, technological, or market forces, which can be low or high, leading to perfect competition or a monopoly, respectively.

Step-by-step explanation:

The factors that determine the threat of new entrants in a market are various barriers to entry which can be legal, technological, or market forces that discourage or prevent potential competitors from entering a market. These barriers can range from low, such as the cost of renting retail space, to very high, like the finite number of radio frequencies available for broadcasting. When barriers to entry exist and are high, they can lead to a monopoly as new firms find it difficult to enter the industry.

Firms may also invent creative business practices that act as additional barriers to discourage competition. The existence of barriers means that perfect competition is not a viable description of how the industry works, and the higher these barriers are, the greater the possibility for the existence of a monopoly.