When new firms can easily enter an industry, how does it affect competitiveness?

When new firms can easily enter an industry, it significantly increases competitiveness. This is because the presence of new entrants in the market heightens the level of rivalry among existing firms and creates additional options for consumers. As new firms enter, they may bring innovative products, different pricing strategies, or improved customer service, which can disrupt established market dynamics.

This influx leads existing firms to enhance their own offerings and improve efficiency to retain their market share. As a result, the overall competitive environment intensifies, leading to more choices for consumers and often driving innovation within the industry. Hence, the ability of new firms to enter easily fosters a more competitive landscape rather than diminishing it.