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Threat of New Entrants

The document discusses the threat of new entrants, which refers to how easy or difficult it is for new companies to enter an industry. If entry is easy and barriers are low, competition increases and profits fall. Industries with high threats of new entrants have low capital requirements, little retaliation possible from incumbents, lack of established brands or patents, no regulation, low switching costs for customers, little customer loyalty, identical products, and easy achievement of economies of scale. The example given is the ride-sharing industry, which has low barriers to entry through a replicable business model and app, low customer switching costs, and ease of imitation.

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Sara Abid
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151 views2 pages

Threat of New Entrants

The document discusses the threat of new entrants, which refers to how easy or difficult it is for new companies to enter an industry. If entry is easy and barriers are low, competition increases and profits fall. Industries with high threats of new entrants have low capital requirements, little retaliation possible from incumbents, lack of established brands or patents, no regulation, low switching costs for customers, little customer loyalty, identical products, and easy achievement of economies of scale. The example given is the ride-sharing industry, which has low barriers to entry through a replicable business model and app, low customer switching costs, and ease of imitation.

Uploaded by

Sara Abid
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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Threat of new entrants

Threat of new entrants.

 This force determines how easy (or not) it is to enter a particular industry. If an industry is
profitable and there are few barriers to enter, rivalry soon intensifies. When more
organizations compete for the same market share, profits start to fall. It is essential for
existing organizations to create high barriers to enter to deter new entrants. Threat of new
entrants is high when:

 Low amount of capital is required to enter a market;


 Existing companies can do little to retaliate;
 Existing firms do not possess patents, trademarks or do not have established brand
reputation;
 There is no government regulation;
 Customer switching costs are low (it doesn’t cost a lot of money for a firm to switch
to other industries);
 There is low customer loyalty;
 Products are nearly identical;
 Economies of scale can be easily achieved.

EXAMPLE:

Threats of new entrant (Uber)

 Uber business model and its app can be replicated by any other company without
massive amounts of capital requirements. The kind of business model on which the
uber is operating at the moment does not take a lot of efforts or cost to build this kind
of business operates on the concept that people who want to work as their drivers can
just bring their own cars , get it registered and work for Uber at flexible hours . so if
any new Company want to enter the industry with a similar business model the cost
and the barriers to entry are low. Also, people are now looking for the convenient
ways of travelling which makes this market attractive . thus there is a high new
entrant to this industry .
 Customer switching cost is very low they can easily shift to another travelers.
 As a technology-based company, it is not easy for Uber to stop any form of imitation
by any other transportation firm. This means that it is easy for the concept to be
copied by new ride-sharing companies and other competitors thereby to not only
operate in the same way as Uber but to also charge less for the same distance.

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