© Dr Adrian Kuah Applied Strategic
Management
Industry Structural Analysis
© Dr Adrian Kuah 2008
The
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Analysis of Competition in an Industry
Industry Structural Analysis
The basic premise that underlies industryanalysis is that the level of industryprofitability is neither random nor the resultof entirely industry specific influences but isdetermined, in part at least, by the systematicinfluence of industry structure.
M. Porter
© Dr Adrian Kuah 2008
The profits earned by thefirms in an industry aredetermined by three factors
• the value of the product orservice to customers;
• the intensity of competition;
• the relative bargainingpower at different levels inthe production chain.
© Dr Adrian Kuah 2008
The Underlying Theory
• theory of monopoly
• the theory of perfect
competition
© Dr Adrian Kuah 2008
The Spectrum of
Industry Structures
Structural
Features
No. of
producers
Entry & Exit
barriers
Product
differentiation
Information
Many
None
None
Perfect
Availability
Perf. Comp.
Few
Significant
Extensive
Restricted
Oligopoly
Two
High
Moderate
Restricted
Duopoly
One
High
Low
Restricted
Industry Type
Monopoly
© Dr Adrian Kuah 2008
POTENTIAL
ENTRANTS
Threats of
New entrants
INDUSTRY
COMPETITORS
Rivalry Among
Existing Firms
SUBSTITUTES
BUYERS
SUPPLIERS
Threat of
substitute products
or services
Bargaining
power of
buyers
Bargaining
power of
suppliers
Porter (1985) Industry
Structural Analysis
© Dr Adrian Kuah 2008
POTENTIAL
ENTRANTS
Threats of
New entrants
INDUSTRY
COMPETITORS
Rivalry Among
Existing Firms
SUBSTITUTES
BUYERS
SUPPLIERS
Threat of
substitute products
or services
Bargaining
power of
buyers
Bargaining
power of
suppliers
© Dr Adrian Kuah 2008
Buyers compete with the industry by
• Forcing down price
• Bargaining for higher quality/ services
• Playing competitors against one another
Buyer Power
© Dr Adrian Kuah 2008
Buyer Power
Price Sensitiveness
• Product cost w.r.t. to total cost
• Competition with others
© Dr Adrian Kuah 2008
Buyer Power
Bargaining power
• size and concentration of buyers
relative to suppliers
• buyers’ switching costs
• buyers’ information
• buyers’ ability to backward integrate
© Dr Adrian Kuah 2008
Power of Customers Is
High If:
• Customer is price sensitive, as when:
cost of product is high relative to total costs
it is hard to differentiate products
customers are facing stiff competition for their
products
• Bargaining power:
size and concentration of customers is high relative to
suppliers
customers have low switching costs
customers are well-informed
customers have the ability to integrate backwards
© Dr Adrian Kuah 2008
POTENTIAL
ENTRANTS
Threats of
New entrants
INDUSTRY
COMPETITORS
Rivalry Among
Existing Firms
SUBSTITUTES
BUYERS
SUPPLIERS
Threat of
substitute products
or services
Bargaining
power
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