Competitive Forces.docx - Competitive Forces Michael Porter has identified five forces that determine the intrinsic long-run attractiveness of a market

Competitive Forces.docx - Competitive Forces Michael Porter...

This preview shows page 1 - 2 out of 3 pages.

: Competitive Forces Michael Porter has identified five forces that determine the intrinsic long-run attractiveness of a market or market segment: industry competitors, potential entrants, substitutes, buyers and suppliers. His model is shown in Figure 11.1. The threats these forces pose are as· follOWR: 1.Threat of intense segment livalry— A segment is unattractive if it already contains numerous, strong, or aggressive competitors. It's even more unattractive if it's stable or declining, if plant capacity must be added in large increments, if fixed costs or exit barriers are high, or if competitors have high stakes in staying in the segment. These condition will lead to frequent price wars, advertising battles, and new-product introductions and will make it expensive to compete. The cellular phone market has seen fierce competition due to segment rivalry. 2. Threat of new entrants- The most attractive segment is one in which entry barriers are high and exit barriers are low.3 Few new firms can enter the industry, and poorly performing firms can easily exit. When both entry and exit barriers are high, profit patential is high, but firms face more risk because poorer-performing firms stay in and fight it out. When both entry and exit barriers are low, firms easily enter and leave the industry, and the returns are stable and low. The worst case is when entry barriers are Jow and exit barriers are high: Here firms enter during good times but find it hard to leave during bad times. The result is chronic overcapacity and depressed earnings for all. The airline industry has low entry barriers but high exit barriers, leaving all carriers struggling during economic downturns. 3. Threat of substitute products- A segment is unattractive when there are actual or potential substitutes for the product. Substitutes place a limit on prices and on profits. If technology advances or competition increases in these substitute industries, prices and profits are likely to fall. Greyhound and Amtrak have seen profitability threatened by the rise of air travel. 4. Threat of buyers' growing bargaining power- A segment is unattractive if buyers possess strong or growing bargaining power. The rise of retail giants
Image of page 1

Subscribe to view the full document.

Image of page 2
  • Fall '16
  • faheem

What students are saying

  • Left Quote Icon

    As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

    Student Picture

    Kiran Temple University Fox School of Business ‘17, Course Hero Intern

  • Left Quote Icon

    I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

    Student Picture

    Dana University of Pennsylvania ‘17, Course Hero Intern

  • Left Quote Icon

    The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

    Student Picture

    Jill Tulane University ‘16, Course Hero Intern

Ask Expert Tutors You can ask bonus questions You can ask questions ( expire soon) You can ask questions (will expire )
Answers in as fast as 15 minutes