Industry and Competitor Analysis Form

B.ThreatofNewEntrants

III. TheFiveCompetitiveForcesThat

DetermineIndustryProfitability

 Ifthefirmsinanindustryarehighlyprofitable,theindustrybecomesa

magnet to new entrants

Rockefeller example

magnet



new



entrants

 Unlesssomethingisdonetostopthis,thecompetitionintheindustrywill

increase,andaverageindustryprofitabilitywilldecline.

 Firmsinanindustrytrytokeepthenumberofnewentrantslowbyerecting

barrierstoentry.

 Abarriertoentryisaconditionthatcreatesadisincentivefor

anewfirmto

enteranindustry.

Universityof Zurich

ISU– InstituteforStrategyandBusinessEconomics

UlrichKaiser

AprimerinEntrepreneurship

Springsemester2008

III. TheFiveCompetitiveForcesThat

DetermineIndustryProfitability

B.ThreatofNewEntrants

BarriertoEntry Explanation

Economiesofscale

Productdifferentiation

Industriesthatarecharacterizedbylargeeconomiesof

scalearedifficultfornewfirmstoenter,unlesstheyare

willingtoacceptacostdisadvantage.

Industriessuchasthesoftdrinkindustrythatare

characterizedbyfirmswithstrongbrandsaredifficultto

breakintowithoutspending

heavilyonadvertising.

Universityof Zurich

ISU– InstituteforStrategyandBusinessEconomics

UlrichKaiser

AprimerinEntrepreneurship

Springsemester2008

Capital

requirements

Theneedtoinvestlargeamountsofmoneytogain

entrancetoanindustryisanotherbarriertoentry.For

example,itnowtakesabouttwoyearsand$4millionto

developanelectronicgame.Manynewfirmsdonot

havethecapitaltocompeteatthislevel.

Page 6/17

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