Which situation increases competitive pressures associated with the threat of entry?

The situation that increases competitive pressures associated with the threat of entry is when newcomers expect attractive profits. This scenario is crucial because potential entrants often evaluate an industry based on its profitability. If they anticipate substantial profits, they are more likely to invest resources to enter the market. This belief in lucrative opportunities motivates new firms to challenge existing players, thereby intensifying competition.

When potential entrants perceive an industry as profitable, they might look to innovate, reduce prices, or enhance services, which can disrupt the market dynamics. This heightened competition can lead to a decrease in market share for existing firms, who must then respond strategically to maintain their positions. Moreover, new entrants can be driven by low barriers to entry, making it easier for them to enter and compete in the marketplace.

The other scenarios, such as firms contesting new entries, brand loyalty, and slow-growing demand, either deter new entrants or stabilize the competitive landscape. For instance, strong brand loyalty can create significant barriers, as it makes it difficult for new entrants to attract customers. Similarly, slow-growing buyer demand can lead to saturated markets where existing firms are already competing intensely, thereby discouraging newcomers from attempting to enter.