In the context of competitive markets and the five forces model, the 'threat of entry' refers to the risk that:

• A. buyers will switch to substitute products
• B. existing firms will exit the market due to high costs
• C. suppliers will increase their bargaining power
• D. new firms will enter the market and increase competition

Answer: (D)

Verified step by step guidance

1. Understand that the 'threat of entry' in the context of competitive markets and Porter's Five Forces model refers to the possibility that new firms may enter the market.
2. Recognize that when new firms enter a market, they increase competition, which can affect prices, market share, and profitability for existing firms.
3. Identify that the threat of entry is not about buyers switching to substitutes, existing firms exiting, or suppliers gaining power, but specifically about new competitors entering the market.
4. Recall that barriers to entry (such as high startup costs, regulations, or strong brand loyalty) influence the level of this threat; lower barriers mean a higher threat of entry.
5. Conclude that the correct interpretation of the 'threat of entry' is the risk that new firms will enter the market and increase competition.