Zara's Case

How Easy Is It for Businesses to

Enter Your Market?

You may have the market cornered with your product, but

your success may inspire others to enter the business and

challenge your position. The threat of new entrants is the

possibility that new firms will enter the industry. New entrants

bring a desire to gain market share and often have significant

resources. Their presence may force prices down and put

pressure on profits.

Analyzing the threat of new entrants involves examining the

barriers to entry and the expected reactions of existing firms

to a new competitor. Barriers to entry are the costs and/or

legal requirements needed to enter a market. These barriers

protect the companies already in business by being a hurdle

to those trying to enter the market. In addition to up-front

barriers, a new competitor may inspire established companies

to react with tactics to deter entry, such as lowering prices or

forming partnerships. The chance of reaction is high in

markets where firms have a history of retaliation, excess cash,

are committed to the industry (see Rivalry Among Competitors),

or the industry has slow growth.

Entry barriers are unique for each industry and situation,

and can change