Notesale: Turn your study into money

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 What are the five competitive forces that determine industry’s profit
potential? Give Example at least three factor from each
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Threat of New Entrants: Barriers to Entry
Economies of scale mean larger firms can produce at lower cost per unit
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Proprietary product differences are the characteristics that make a product appeal to a
large market segment
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Brand identity is the extent to which buyers take the brand name into account when
making purchase decisions
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Switching Costs
Access to Distribution Channels
Cost Disadvantages Independent of Scale
Government Policy
Expected Retaliation

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The greater the degrees of
differentiation among suppliers the more bargaining power suppliers have
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The greater the number and closeness of
substitute inputs the lower the bargaining power of suppliers
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Usually the more
concentrated the industry, the fewer suppliers and the more control suppliers have over
the prices they charge
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Cost relative to total purchases in the industry refers to the amount your firm spends on
inputs from a particular supplier compared to the total revenue of all firms in the
supplier’s industry
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The buyer’s bargaining power falls as spending with a particular firm falls
simply because the buyer’s business isn’t as important to the supplier
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Threat of Substitutes
Relative price performance of substitutes is the price of substitutes for your output
compared to the price you are charging
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Switching costs refers to the cost to the buyer of switching from one seller to another
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Buyer propensity to substitute is the extent to which buyers are willing to consider other
suppliers
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Bargaining Power of Buyers
Buyer concentration versus firm concentration refers to the extent of concentration in the
buyer’s industry compared to the extent of concentration in your industry
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Buyer volume is the number of units of your product the buyer purchases from all
sources
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Buyer information is the state of information buyers have about your industry
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Substitute products mean the number and closeness of substitutes available for your
product
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Price of your product relative to total expenditures on all products
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The greater the fractions of total
expenditure the greater the price elasticity of demand and the more bargaining power
buyers have
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The greater the differentiation of your product, the lower its
price elasticity of demand and the less bargaining power buyers have
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The stronger your brand identity the less bargaining power buyers have
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Rivalry among existing competitors
Industry growth is the speed at which the market is growing
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Intermittent overcapacity is the amount demand fluctuates during a year (or over a
business cycle) and the impact lower demand has on how efficiently the firm is able to
use its plant and equipment
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More intense rivalry is likely to be fostered in an industry in which firms face
either large amounts of unused plant capacity or face frequent idle capacity
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An industry in which a few firms supply most of the output is likely to not be very
competitive because the large firms will control the market

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