the level of competition in the industry. THE FIVE COMPETITVE FORCES1.POTENTIALNEWENTRANTS.Capitalrequirements and economies of scale areexamples of two potential barriers to entry thatcan keep new competitors. THREATS OF NEWENTRANTS ARE HIGH WHEN:a.Low amount of capital is required toenter a market.b.Existing companies can do little toretaliate.c.Existing firms do not possess patents.d.There is no / little governmentregulation.e.Customer switching is low.2.BARGAINING POWER OF BUYERS. Informedcustomers become empowered customers.BUYERS EXERT STRONG BARGAINING POWERWHEN:a.Buying in large quantities or controlmany access points to the finalcustomer.b.Only few buyers exist.c.Switching costs to other suppliers arelow.d.There are many substitutes.e.Buyers are price sensitive.3.BARGAINING POWERS OF SUPPLIERS. Theconcentration of suppliers and the availability ofsubstitute suppliers are significant factors indetermining supplier power. SUPPLIERS HAVESTRONG BARGAINING POWER WHEN:a.There are few suppliers but manybuyers.b.Few substitute raw materials exist.c.Suppliers hold scarce resources.d.Cost of switching raw materials isespecially high.4.THREATS OF SUBSTITUTE PRODUCTS. The powerof alternatives and substitutes for a company’sproduct may be affected by changes in cost or intrends that will deflect buyer loyalty.5.RIVALRY AMONG COMPETITORS. This isinfluenced by the preceding four forces, as wellas by cost and product differentiation. RIVALRYAMONG COMPETITORS IS INTENSE WHEN:a.There are many competitors.b.Exit barriers are high.c.Industry growth is slow or negative.d.Products are not differentiated and canbe easily substituted.Technological Institute of the Philippines – Quezon City Campus 2ndSemester SY 2017-2018
APPLIED ECONOMICS 001 HANDOUTS CHAPTER 6 -7 PROF. BERNARD O. ESTIOCOe.Competitors are of equal size.The Porter’s five forces model determine an industry and the level of competition in that industry. The stronger the competitive forces in the industry, the lesser chance its profitability. STEPS USED IN PORTER’S FIVE FORCESFRAMEWORK:1.GATHER THE INFORMATION ONE EACH OFTHE FIVE FORCES. What managers should doduring this step is to gather information about theirindustry and to check it against each of the factors.2.ANALYZE THE RESULTS AND DISPLAY THEMON A DIAGRAM. After gathering all theinformation, you should analyze it and determinehow each factor is affecting an industry. Rate themeither VERY LOW / VERY WEAK, LOW / WEAK,MODERATE / AVERAGE, HIGH / STRONG, or VERYHIGH / STRONG. For example, if there are manycompanies of equal size operating in the slow
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Technological Institute, Quezon City Campus, PROF. BERNARD O. ESTIOCO
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