Week 7 - Industry Analysis

Question 1

5-forces analysis:

Answer 1

• Internal rivalry (in the middle, everything else branches out)
• Entry
• Supplier power
• Buyer power
• Substitutes and complements

Question 2

Five forces analysis: internal rivalry

Answer 2

Internal rivalry refers to the jockeying for share by firms within a market. Firms may get involved
in price competition in order to gain market share (there are factors which intensify price competition).

Question 3

What factors intensify price competition?

Answer 3

The following factors intensify price competition:

• Many sellers in the market
• The industry is declining
• Firms are asymmetric
• Some firms have excess capacity
• Products are homogeneous/buyers have low switch costs
• There are large/infrequent sales orders
• There is high industry price elasticity of demand

Question 4

Five forces analysis: entry

Answer 4

Entry heats up internal rivalry. Some factors that affect entry:

• Economies of scale/scope
• Government protection
• Consumers’ brand loyalty
• Essential resources/know-how

Question 5

Five forces analysis: Substitutes and Complements

Answer 5

Substitutes erode profits while complements boost the demand for the product.

Question 6

Five forces analysis: Supplier Power and Buyer Power

Answer 6

The following factors affect supplier power and buyer power:

• Competitiveness of the input market
• The relative concentration of the industry in question/its upstream and its downstream industries
• Availability of substitute inputs
• Relationship-specific investments by the industry and its suppliers

Question 7

what to do when answering a question about the 5 forces

Answer 7

discuss each force:
	Define 
	Key factors to determine each force
	Pick one industry and analyse it 
•	Is it going to be profitable
•	E.g. banking industry, chicken industry, qircraft industry
o	Prepare one industry to talk about 
o