Final answer:
Existing firms can reduce the impact of potential entrants by increasing barriers to entry through strategies like economies of scale, control of resources, and legal protections.
Step-by-step explanation:
To reduce the impact of potential entrants in Porter's Five Forces, existing firms can employ strategies to increase barriers to entry. These barriers can include developing economies of scale that lead to a natural monopoly, acquiring control over essential physical resources, making use of legal protections such as patents, trademarks, copyrights, and trade secrets, and engaging in practices like predatory pricing to intimidate potential entrants. A natural monopoly occurs when a single firm can supply the entire market more efficiently than multiple firms due to economies of scale. While technological improvements leading to lower production costs can stimulate initial higher profits and thereby attract new competitors, significant barriers to entry can prevent this from affecting established firms.