Question

Which one of the following increases the competitive pressures associated with the threat of entry? Select one: a. When buyers have a high degree of loyalty to the brands and product offerings of existing industry members b. When buyer demand for the product is growing fairly slowly c. When newcomers can expect to earn attractive profits d. When few outsiders have the expertise and resources to overcome entry barriers

Answer 1

Answer:

C. When the newcomers can expect to earn attractive profits

Explanation:

As per Michael Porter, following competitive factors exist in an industry:

1. Intensity of competition between existing firms.
2. Buyer power i.e buyers negotiation skills and bargaining power.
3. Seller power i.e seller power of charging and controlling price of inputs.
4. Threat of new entrants entering the industry i.e new firms entering the industry.
5. Threat of substitutes i.e the extent of substitute products that exists w.r.t a firm's own products.

Thus, if new firms see an industry as profitable and favorable w.r.t the resources and capabilities they possess, it represents a threat to the existing firms of the industry since, such firms would try and break the entry barriers and enter the markets and consequently take away a share of existing profits of the industry.