High capital requirements, strong brand loyalty and government licensing make it difficult for new firms to start up in an industry. Which of Porter's forces does this reduce?
Answer and explanation
Correct answer: B. The threat of new entrants
- Step 1: Barriers to entry are obstacles which stop new firms joining the industry.
- Step 2: Capital requirements, brand loyalty and licensing are standard barriers.
- Step 3: They lower the threat of new entrants.
Answer
The threat of new entrants.
Why not the others: Competitive rivalry among existing firms: Rivalry depends on the number and strength of existing competitors. The bargaining power of buyers: Buyer power depends on customers' concentration and switching ability. The threat of substitutes: Substitutes are different products that meet the same need, which entry barriers do not prevent.
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