A new company named Far Reach Inc.entered the radio retail business.In response,two incumbent radio retailers,Smooth Waves and Clear Signal,lowered the cost of their travel alarm radios and long-distance radios.Also,they spent more money to improve these radios.By doing this,Smooth Waves and Clear Signal
A) decreased industry exit barriers.
B) increased industry exit barriers.
C) decreased industry profit potential.
D) increased industry profit potential.

Question

Quizplus · Accepted Answer

Potential new entries in an industry decrease profit potential in two major ways. Incumbent firms may lower prices to make entry appear less attractive to the potential new competitors. Incumbent firms may spend more to satisfy their existing customers.

A New Company Named Far Reach Inc