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

A. Incumbent firms are willing and able to be aggressive in defending their market positions against entry.
B. Incumbent firms are complacent.
C. Buyers are not particularly price-sensitive, and the industry already contains a dozen or more rivals.
D. The relative cost positions of incumbent firms are about the same, such that no one incumbent has a meaningful cost advantage.
E. Buyer switching costs are moderately low because of strong product differentiation among incumbent firms.

Potential entrants are likely to be dissuaded from entering an industry when incumbent firms aggressively defend their positions, creating high barriers to entry. Such barriers can appear in a variety of forms, such as large marketing budgets or legal protections. When these barriers are high enough, they may lead to monopolies.

Explanation:

Potential entrants are most likely to be deterred from entering an industry when incumbent firms are willing and able to be aggressive in their defense against entry (option a). This can involve large advertising budgets, technological superiority, legal barriers or a firmly established brand name. These barriers to entry are high, thereby giving incumbent firms a significant advantage.For example, launching a successful new cola drink might require spending more than Pepsi or Coca-Cola on marketing, an obstacle many companies cannot overcome. This is an indication of the incumbent firms' dominance and the high barriers to entry. Also, if a restaurant invents a unique barbecue sauce and patent it, this might act as a legal barrier deterring potential entrants from offering a similar product.Perfect competition becomes an unreasonable description of how an industry works when barriers to entry exist. Barriers can be legal, such as patents, technology-based, such as being the only company with access to specific technology, or based on marketing strategies and brand loyalty. When high enough, these barriers can even result in a monopoly.

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