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The threat of entry, therefore, puts a cap on the profit potentialof an industry. When the threat is high, incumbentsmust hold down their prices or boost investment to deternew competitors. In specialty coffee retailing, for example,relatively low entry barriers mean that Starbucks must investaggressively in modernizing stores and menus.The threat of entry in an industry depends on the heightof entry barriers that are present and on the reaction entrantscan expect from incumbents. If entry barriers are lowand newcomers expect little retaliation from the entrenchedcompetitors, the threat of entry is high and industry profi tabilityis moderated. It is the threat of entry, not whetherentry actually occurs, that holds down profi tability
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