What does the threat of new entrants measure in an industry?

The threat of new entrants in an industry measures the ease or difficulty for new companies to enter that industry and compete with established businesses. This concept is crucial because it directly affects the competitive landscape and can influence the overall profitability of existing firms.

When barriers to entry are low, new entrants can easily come into the market, which increases competition and can lead to price reductions, reduced margins, and overall diminished profitability for existing companies. On the other hand, high barriers to entry—such as significant capital requirements, stringent regulatory requirements, or strong brand loyalty—can deter new players from entering the market, allowing existing firms to maintain higher profits due to decreased competition.

The other options don't address this concept effectively. For instance, while potential profitability of existing businesses relates to industry dynamics, it does not specifically pertain to the entrance of new firms. The impact of market share involves already established companies rather than new entrants, and current trends in customer preferences focus on market behavior rather than barriers to entry.