What is the threat of new entrants?

• A. The risk that new competitors enter and erode profits by increasing competition.
• B. The risk that existing firms exit.
• C. Regulatory barriers to entry.
• D. A description of market monopoly.

Answer: (A)

The threat of new entrants is the risk that new competitors enter and erode profits by increasing competition. This is a key idea in strategy analysis: when barriers to entry are low, new firms can enter the market more easily, heightening competitive pressure, driving prices down, and squeezing margins for existing players. In other words, the concern is not about firms leaving or regulatory rules themselves, but about the potential for fresh entrants to change the competitive landscape and reduce profitability. The other options describe different phenomena—exit of existing firms, barriers that deter entrants, or a monopoly—which are not the same as the ongoing risk posed by new entrants entering the market.