Question

The telecom industry in the country of Andalus is an industry characterized by the presence of strong network effects, high brand loyalty, high economies of scale, and proprietary technology among incumbent firms. Thus, in the telecom 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 non-existent.

Answer 1

Answer:

B) threat of new entrants is most likely low.

Explanation:

We could classify the telecom industry in Andalus (or any other country) as an oligopoly, where only a handful of firms control the entire market. As any oligopoly, the threat of new entrants is relatively low because of the high investment required and economies of scale achieved by existing firms.

Also, the bargaining power of suppliers is extremely large, and disproportionate compared to the buying power of customers. Only steep competition among telecom companies levels the field. That is why governments generally regulate telecom markets. for example, in some places the user is the owner of the phone number, so they do not have to be stuck with a company just to keep their old number.

Answer 2

Answer:

The answer is B.

Explanation:

In the telecom industry, the threat of new entrants is most likely low. Why? - Because:

1. High brand loyalty meaning that the existing customers are unlikely to switch to any competitors be it existing or potential. This will discourage any new entrant.

2. High economies of scale. They are enjoying low cost of inputs with high outputs. New entrants will find it difficult initially to produce at low cost. This will also discourage new entrants.

Also, the presence of strong network effects and proprietary technology among the existing firms will deter new entrants.