Business Degree Certification Practice Test

What is indicated when it is said that the barriers to entry in an industry are high?

1. It is easier for new competitors to enter the industry.

2. It is more difficult for new competitors to enter the industry.

3. The industry is less profitable.

4. The industry is saturated with competitors.

The correct answer is: It is more difficult for new competitors to enter the industry.

High barriers to entry in an industry signify that it is more difficult for new competitors to enter the market. This can occur due to several factors, such as significant capital requirements, stringent regulatory standards, strong brand loyalty among existing customers, economies of scale enjoyed by established firms, or access to distribution channels being limited. When barriers to entry are high, existing companies in the industry can maintain their market position and profitability because there is less threat of new entrants eroding their market share. This creates a more stable environment for the current players. New competitors may find it challenging to overcome these obstacles, which can deter them from attempting to join the industry, thereby allowing established firms greater leverage and control. In contrast, high barriers do not inherently indicate the level of profitability of the industry or its saturation with competitors; rather, they are an indication of market dynamics that protect incumbents from new challenges.