3.7.7 Flashcards
What is the “entry threat” in the competitive environment?
Entry threat refers to how likely it is that a new competitor will enter the market. A high entry threat means the market is easy to enter, while a low entry threat indicates significant barriers to entry.
What are barriers to entry and how do they affect businesses?
Barriers to entry are factors that make it difficult for new businesses to enter a market, such as high advertising costs, brand loyalty, or government regulations. High barriers protect existing businesses by limiting new competition.
What is a substitute in the context of business competition?
A substitute is an alternative product that offers similar or the same features and benefits as a competing product. The presence of substitutes can decrease the profitability of businesses by giving consumers more options.
What is supplier power, and how does it impact businesses?
Supplier power refers to how much negotiating power a supplier has over its customers. When suppliers have high power, they can demand higher prices, which increases costs for businesses.
What is buyer power, and how does it affect a market?
Buyer power refers to the bargaining power of customers. If there is a lot of competition and many choices for consumers, buyer power is high, which forces businesses to offer better prices and services.
What is rivalry in the competitive environment?
Rivalry assesses the intensity of competition between businesses in an industry. High rivalry means companies are constantly competing for market share, leading to lower profits and increased pressure on businesses to differentiate themselves.
What are the five forces in Porter’s Five Forces analysis?
Porter’s Five Forces are:
Threat of New Entrants
Threat of Substitute Products
Bargaining Power of Customers (Buyers)
Bargaining Power of Suppliers
Industry Rivalry
These forces help businesses assess the competitiveness and profitability of an industry.
What are the different types of competitive structures in a market?
The five types of competitive structures are:
Monopoly – One firm dominates the market.
Duopoly – Two firms dominate the market.
Oligopoly – A small number of firms are in the industry.
Monopolistic Competition – Many firms compete, offering differentiated products.
Perfect Competition – Many firms with no influence on market price.
How can Porter’s Five Forces affect strategic decision-making and profitability?
Porter’s Five Forces framework helps firms assess the competitive environment, guiding them in strategic decision-making to enhance profitability. For example, understanding supplier power may lead a firm to negotiate better deals or seek alternative suppliers, and assessing buyer power may encourage businesses to improve product quality or reduce prices.
How do changes in Porter’s Five Forces affect market attractiveness?
Changes in any of Porter’s Five Forces—such as increased rivalry or the entry of new competitors—can make a market less attractive by reducing profitability. Conversely, lower supplier power or fewer substitutes can make a market more attractive, offering higher profit potential.
