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Unformatted text preview: g., market share,
proﬁts) of the ﬁrms over time. 3. Identify classes of characteristics that show
improving performance. For U.S. brewing (Besanko Table 5.10), a shift
away from smaller breweries (ignoring
microbreweries), because of increasing economies
• improvements in refrigeration → easier transport → large-scale, centralised brewing • larger cost-effective bottling lines
• advertising has created a nationwide premium brand image R.E. Marks ECL 2-32 2.7 How Does the Magnitude of Scale Economies
Affect the Intensity of Each of the Five
Barriers to Entry: Economies of scale (EOS) deter
entry by forcing an entrant to make a large capital
investment or incur large up-front costs and risk
strong reaction from exiting ﬁrms or accept cost
Internal Industry Rivalry: EOS affect market size
and concentrations, which in turn affect the nature
of rivalry in the industry.
With EOS, only one or very few large ﬁrms will be
able to produce at or above MES. Smaller ﬁrms
will be at a cost disadvantage.
Competition tends to be ﬁercer when there are
only a few ﬁrms in the industry. With this market
structure, there can be little mistake concerning
the relative power of individual ﬁrms, as well as
who the industry leaders are.
Supplier Power: EOS affect the number of
competitors that can compete successfully in any
market. If EOS are high, then there are likely to
be fewer players, increasing the power of the
supplying industry over buyers.
As EOS decline in importance, the supplying
industry will have more competitors, increasing
the supplier power in downstream industries,
which will have more choices and be less
threatened by hold-up. R.E. Marks ECL 2-33 Buyer Power: Again, EOS will affect the number
of competitors that can compete successfully in
any market. If EOS are high, then there are likely
to be few players, increasing the relative power of
the buying industry.
As EOS decline in importance, there will be more
ﬁrms buying, and the selling industry will be able
to play competing buyers aginst one another for
the best deal.
Substitutes: One category of substitute products
that deserves the most attention in the ﬁve-forces
analysis is those that are subject to trends
improving their price-performance tradeoff with
the designated industry’s product: if the
manufacturer of a substitute product has achieved
EOS, the substitute product will be offered at a
much lower price point that the industry’s product
e.g. while advertising by one ﬁrm in an industry
may do little to bolster the industry’s position
against a substitute, heavy/sustained advertising
by all industry players may improve the industry’s
collective position against the substitute. R.E. Marks 2.8 Applying the Five Forces 2.8.1 U.S. Hospital Markets
Over the past ﬁfteen years, U.S. hospital
bankruptcies have increased to 1.5% p.a.
Deﬁne the market.
Other part sellers: substitutes.
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This note was uploaded on 02/04/2014 for the course TIDB 1010-18 taught by Professor Kellygrany during the Fall '13 term at Tulane.
- Fall '13