Product differentiation helps reduce the threat of new entry by forcing potential entrants to an industry to absorb not only the standard costs of beginning business but also the additional costs associated with overcoming incumbent firms' product-differentiation advantages.

Question

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Product differentiation creates barriers to entry by making it more difficult and costly for new firms to enter the market and compete with established firms who have already established brand loyalty with their customers. This can help reduce the threat of new entrants.

Product Differentiation Helps Reduce the Threat of New Entry by Forcing