8 - Dynamics, Industry analysis

Question 1

5 forces of Porter

Answer 1

Describe how each force might destroy a firm’s profit.

• Internal Rivalry
• Supplier Power
• Buyer Power
• Threat of new entrants
• Threat of complements and substitutes

Question 2

Internal rivalry

Answer 2

Intensify competition when:

• many sellers
• stagnant or declining industry
• firms have different costs => price targets
• excess capacity
• products are undifferentiated
• low switching costs of buyers
• lumpy orders
• strong exit barriers
• height industry price elasticity of demand

Question 3

Threat of new entrants

Answer 3

Divide market share and lower concentration

• economies of scale
• gouvernement regulations
• reputation
• accessibility of key inputs
• experience curve
• network externalities
• entry-deterring measures

Question 4

Substitutes and complements

Answer 4

• availability of complements and substitutes
• price/value characteristic of them
• price elasticity of industry demand

Question 5

Supplier and buyer power

Answer 5

Indirect power: when they can sell their services to the highest bidder
Direct power: when the market is concentrated or when their customers are locked intro relationship because of RSI

• concentration
• competition
• purchase volume
• availability of substitutes
• relationship specific investment
• threat of integration

Question 6

Limitation of the 5 forces

Answer 6

• qualitative
• at industry level, doesn’t take into account firm specificities
• doesn’t take into account the role of the gouvernement
• doesn’t take into account factors that can affect demand (taste, income, advertising…)

Question 7

Cope with the 5 forces

Answer 7

• tapered integrations
• entry-deterring stratégies
• enter new industry segment or dvp cost advantage/différenciation to isolate from the forces
• create switching costs and establishing facilitating practices

Question 8

Value net

Answer 8

Brandenberger and Nalebuff
Interactions among forces can enhance profits
- set technology standard
- promote favorable regulations and legislations
- cooperation to improve product quality and boost demand
- cooperation to improve productive efficiency