Threat of new entrants :
When the threat is high, incumbents must hold down their prices or boost investment to deter new competitors.
The threat of entry in an industry depends on the height of entry barriers that are present and on the reaction entrants can expect from incumbents
It is the threat of entry, not whether entry actually occurs, that holds down profitability.

Barriers to entry. Entry barriers are advantages that incumbents have relative to new entrants.
There are seven major sources:
1. Supply-side economies of scale. These economies arise when firms that produce at larger volumes enjoy lower costs per unit because they can spread fixed costs over more units, employ more efficient technology, or command better terms from suppliers. Supply-side scale economies deter entry by forcing the aspiring entrant either to come into the industry on a large scale, which requires dislodging entrenched competitors, or to accept a cost disadvantage.

In microprocessors, incumbents such as Intel are protected by scale economies in research, chip fabrication, and consumer marketing.

3. Customer switching costs.
The larger the switching costs, the harder it will be for an entrant to gain customers.

4. Capital requirements. The need to invest large fi nancial resources in order to compete can deter new entrants.
Capital may be necessary not only for fi xed facilities but also to extend customer credit, build inventories, and fund startup losses. The barrier is particularly great if the capital is required for unrecoverable and therefore harder-to-fi nance expenditures, such as up-front advertising or research and development. 5. Incumbency advantages independent of size. No matter what their size, incumbents may have cost or quality advantages not available to potential rivals. These advantages can stem from such sources as proprietary technology, preferential access to the best raw material sources, preemption of the most