The threat of new entrants refers to the potential for new firms to enter an industry and compete with existing firms. This is one of the five forces of competition identified by economist Michael Porter, and it plays a significant role in shaping the competitive dynamics of an industry.
There are several factors that can affect the threat of new entrants in an industry. One factor is the level of barriers to entry, which can include economic, legal, technological, or regulatory barriers. For example, an industry with high fixed costs or economies of scale may have high barriers to entry, as it may be difficult for new firms to compete with existing firms that have already achieved these efficiencies.
Another factor that can affect the threat of new entrants is the level of competition within the industry. If an industry is highly competitive, with many firms vying for market share, it may be less attractive to new firms, as they may have a harder time competing and achieving profits.
The threat of new entrants can also be influenced by the level of brand loyalty among consumers. If consumers are loyal to a particular brand or set of firms, it may be more difficult for new firms to enter the market and win over customers.
Here are a few examples of how the threat of new entrants can play out in different industries:
- The retail industry – The retail industry has relatively low barriers to entry, as it is relatively easy for new firms to open a store or an online store and start selling products. However, the industry is highly competitive, with many firms vying for market share. As a result, the threat of new entrants is relatively high in the retail industry.
- The airline industry – The airline industry has relatively high barriers to entry, as it requires significant investments in aircraft and other infrastructure, as well as regulatory approvals. Additionally, the industry is highly competitive, with many firms vying for market share. As a result, the threat of new entrants is relatively low in the airline industry.
- The mobile phone industry – The mobile phone industry has relatively high barriers to entry, as it requires significant investments in research and development and manufacturing capabilities. Additionally, the industry is highly competitive, with many firms vying for market share and loyal customers. As a result, the threat of new entrants is relatively low in the mobile phone industry.
