Potential entrants are more likely to be deterred from entering an industry when?

Potential entrants are more likely to be deterred from entering an industry when incumbent firms have previously been aggressive in defending their market positions against entry. This is because when incumbent firms demonstrate a willingness and ability to vigorously protect their market share, potential entrants perceive a high risk in trying to enter the market. Strategies such as pricing wars, extensive advertising, product innovations, or improvements in customer service can create a formidable barrier to entry.

If potential entrants see that existing firms are equipped to retaliate strongly against competitive threats, they may choose not to enter the industry at all to avoid costly confrontations or losses. This proactive defense signals to potential entrants that the market is competitive and that they may not be able to successfully establish a foothold.

In contrast, if incumbent firms are complacent, they may inadvertently facilitate entry, as they are less likely to respond aggressively to new entrants. Likewise, when buyers are not particularly price sensitive and a market already has numerous rivals, it can create an environment where potential entrants find that success may not be guaranteed, but this situation does not have the same deterrent effect as a history of aggressive market defense.