Question

The internet service provider industry in the country of Megalopolis is an industry characterized bythe presence of strong network effects, high brand loyalty, high economies of scale, and proprietarytechnology among incumbent firms. Thus, in the internet service provider industry, the
a. threat of substitutes is most likely high.

b. threat of new entrants is most likely low.

c. bargaining power of buyers is most likely low.

d. entry barriers are most likely nonexistent.

Answer 1

Answer:

The correct answer is letter "B": threat of new entrants is most likely low.

Explanation:

According to American Harvard professor Michael Porter (born in 1947), the Five Forces determine the competition in a market: competition in the industry, the threat of new entrants into the market, bargaining power of suppliers, bargaining power of customers, and the threat of substitutes.  

The threat of new entrants is stronger if the product of a given market is undifferentiated and does not offer any competitive advantage for consumers. Besides, the less established a company is, the more likely new entrants will appear with the intention of taking over the market.

Therefore, if the internet service provider of Megalopolis has high brand loyalty, economies of scale, and proprietary technology it implies the firm offers differential advantages to its clients and that the firm is well-established. New entrants' threat is low under these circumstances.