Entry Barriers The following are factors that influence the entry barriers: Economies of Scale Product Differentiation Capital Requirements Switching Costs Access to Distribution Channels Cost Disadvantages Independent of Scale Government Policy
Intensity of Rivalry Among Existing Competitors Intense rivalry is the result of a number of interacting structural factors. –Numerous or Equally Balanced Competitors. –Slow Industry Growth. –High Fixed or Storage Costs (relative to value added) –Lack of Differentiation or Switching Costs. –Capacity Augmented in Large Increments. –Diverse Competitors. –High Strategic Stakes. –High Exit Barriers.
Pressure from Substitute Products Impact of substitutes can be summarized as the industry’s overall elasticity of demand. Substitutes not only limit profits in normal times, but they also reduce the bonanza an industry can reap in boom times. Position vis-à-vis substitute products may well be a matter of collective industry actions. Substitute products that deserve the most attention are those that (1) are subject to trends improving their price- performance tradeoff with the industry’s product, or (2) are produced by industries earning high profits.
Bargaining Power of Buyers A buyer group is powerful if the following circumstances hold true: It is concentrated or purchases large volumes relative to seller sales. The products it purchases from the industry represent a significant fraction of the buyer’s costs or purchases. The products it purchases from the industry are standard or undifferentiated. It faces few switching costs. It earns low profits. Buyers pose a credible threat of backward integration. The industry’s product is unimportant to the quality of the buyers’ products or services. The buyer has full information.
Bargaining Power of Suppliers A supplier group is powerful if the following apply: It is dominated by a few companies and is more concentrated than the industry it sells to. It is not obliged to contend with other substitute products for sale to the industry. The industry is not an important customer of the supplier group. The suppliers’ product is an important input to the buyer’s business. The supplier group’s products are differentiated or it has built up switching costs. The supplier group poses a credible threat of forward integration.
What roles do the following have? LABOUR GOVERNMENT
Bargaining Power of Labour? Labor must be recognized as a supplier as well. The principles in determining the potential power of labor as a supplier are similar. The key additions in assessing the power of labor are its degree of organization, and whether the supply of scarce varieties of labor can expand.
Government as an Industry Competition Force Government at all levels must be recognized as potentially influencing many if not all aspects of industry structure both directly and indirectly. Many times government’s role as a supplier or buyer is determined more by political factors than by economic circumstances, Government regulations can also set limits on the behavior of firms as suppliers or buyers. Government can also affect the position of an industry with substitutes through regulations, subsidies, or other means. Government can also affect rivalry among competitors by influencing industry growth, the cost structure through regulations, and so on.
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