Internal industry rivalry eos affect market size and

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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 of scale: • 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 Forces? 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 disadvantage. 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. Internal Rivalry? Define the market. Other part sellers: substitutes. Geographical markets 1980: F...
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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.

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