ExpertMedium2 marksMultiple Choice
ACCA · Question 04 · Syllabus A: Business organisation and its external environment
AquaNet is a public utility company providing water services to a major metropolitan area. The cost of laying underground pipes, building reservoirs, and obtaining government licenses makes it nearly impossible for new companies to start competing in this market.
In the context of Porter's Five Forces, which force is primarily protecting AquaNet's market position?
AquaNet is a public utility company providing water services to a major metropolitan area. The cost of laying underground pipes, building reservoirs, and obtaining government licenses makes it nearly impossible for new companies to start competing in this market.
In the context of Porter's Five Forces, which force is primarily protecting AquaNet's market position?
Answer options:
A.
Bargaining power of suppliers
B.
Threat of new entrants
C.
Threat of substitutes
D.
Competitive rivalry
How to approach this question
Identify what the high costs are preventing. They are preventing new companies from starting up in the same industry.
Full Answer
B.Threat of new entrants✓ Correct
Porter's Five Forces includes the Threat of New Entrants. Barriers to entry, such as high infrastructure costs (economies of scale/capital requirements) and government regulations, keep this threat low, protecting monopolies like public utilities.
Common mistakes
Selecting competitive rivalry instead of new entrants. Rivalry is about current competitors.
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