MGT Notes

Reference: Strategic Management (5e) – Frank T. Rothaermel (Pg 84)

The Threat of Entry describes the risks that existing firms face when potential competitors enter their industry since this would depress the overall industry profit potential. Incumbent firms would have to lower prices to make the competitor less attractive (for customers) and their spending would increase to satisfy existing customers (new offerings to keep them interested). Since new entrants will lead to excess capacity and cause an inability for incumbents to raise prices, the incumbent’s profit potential would be depressed.