Besanko et al, Economics of Strategy (3rd Edition), Wiley & Sons, Inc., 2004
| |Characterization |Future Trend |Comments/Notes |
| |(Current) | | |
|FACTORS AFFECTING RIVALRY AMONG COMPETITORS |
|To what extent does pricing or non- price competition (e.g., advertising) erode profitability of a typical firm in this industry |
|Degree of seller concentration? | | | |
| | | | |
| | | | |
| | | | |
|Rate of industry growth? | | | |
|Significant cost differences among | | | |
|firms? | | | |
|Excess capacity? | | | |
|Cost structure of firms: sensitivity of| | | |
|costs to capacity utilization? | | | |
|Degree of product differentiation among| | | |
|sellers? Brand loyalty to existing | | | |
|sellers? Cross- price elasticities of | | | |
|demand among competitors in industry? | | | |
|Buyer’s cost of switching from one | | | |
|competitor to another? | | | |
|Are prices and terms of sales | | | |
|transactions observable? | | | |
|Can firms adjust prices quickly? | | | |
|Large and/or infrequent sales orders? | | | |
|Use of facilitating practices (price | | | |
|leadership, advance announcement of | | | |
|price changes)? | | | |
|History of “cooperative pricing”? | | | |
|Strength of exit barriers? | | | |
|FACTORS AFFECTING THE THREAT OF ENTRY |
|To what extent does the threat or incidence of entry work to erode the profitability of a typical firm in this industry? |
|Significant economies of scale? | | | |
|Importance of reputation or established| | | |
|brand loyalties in purchase decisions? | | | |
|Entrants’ access to distribution | | | |
|channels? | | | |
|Entrants’ access to raw materials? | | | |
|Entrants’ access to | | | |
|technology/know-how? | | | |
|Entrants’ access to favorable | | | |
|locations? | | | |
|Experienced-based advantages of | | | |
|incumbents? | | | |
|Network externalities: demand-side | | | |
|advantages to incumbents from large | | | |
|installed base? | | | |
|Government protection of incumbents? | | | |
|Perception of entrants about expected | | | |
|retaliation of incumbents/reputations | | | |
|for “toughness”? | | | |
|FACTORS AFFECTING OR REFLECTING PRESSURE FROM SUBSTITUTE PRODUCTS AND SUPPORT FROM COMPLEMENTS |
|To what extent does competition from substitute products outside the industry erode the profitability of a typical firm in the industry? |
|Availability of close substitutes? | | | |
|Price-value characteristics of | | | |
|substitutes? | | | |
|Price elasticity of industry demand? | | | |
|Availability of close complements? | | | |
| | | | |
|Price- value characteristics of | | | |
|complements? | | | |
|FACTORS AFFECTING OR REFLECTING POWER OF INPUT SUPPLIERS |
|To what extent do individual suppliers have the ability to negotiate high input prices with typical firms in this industry? To what extent do input prices deviate from those that would prevail|
|in a perfectly competitive input market in which input suppliers act as price takers? |
|Is supplier industry more concentrated | | | |
|than industry it sells to? | | | |
|Do firms in industry purchase | | | |
|relatively small volumes relative to | | | |
|other customer of suppliers? Is typical| | | |
|firms’ purchase volume small relative | | | |
|to other customers of supplier? Is | | | |
|typical firms’ purchase volume small | | | |
|relative to sales of typical supplier? | | | |
|Few substitutes’ of suppliers’ inputs? | | | |
|Do firms in industry make relationship-| | | |
|specific investments to support | | | |
|transactions with specific suppliers? | | | |
|Do suppliers pose credible threat of | | | |
|forward integration into the product | | | |
|market? | | | |
|Are suppliers able to | | | |
|price-discriminate among prospective | | | |
|customers according to ability/ | | | |
|willingness to pay for inputs? | | | |
|FACTORS AFFECTING OR REFLECTING POWER OF BUYERS |
|To what extent do individual buyers have the ability to negotiate low purchase prices with typical firms in this industry? To what extent do purchase prices differ from those that would |
|prevail in a market with a large number of fragmented buyers in which buyers act as price takers? |
|Is buyers’ industry more concentrated | | | |
|than industry it purchase from? | | | |
|Do buyers purchase in large volumes? | | | |
|Does a buyer’s purchase volume | | | |
|represent large fraction of typical | | | |
|seller’s sales revenue? | | | |
|Can buyers find substitute for | | | |
|industry’s product? | | | |
|Do firms in industry make | | | |
|relationship-specific investment to | | | |
|support transactions with specific | | | |
|buyers? | | | |
|Is price elasticity of demand of | | | |
|buyer’s product high or low? | | | |
|Do buyers pose credible threat of | | | |
|backward integration? | | | |
|Does product represent significant | | | |
|fraction of cost in buyer’s business? | | | |
|Are prices in the market negotiated | | | |
|between buyers and sellers on each | | | |
|individual transaction or do sellers | | | |
|post a “take-it-or-leave it” price that| | | |
|applies to all transactions | | | | displayed 300 characters
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Besanko et al, Economics of Strategy (3rd Edition), Wiley & Sons, Inc., 2004
| |Characterization |Future Trend |Comments/Notes |
| |(Current) | | |
|FACTORS AFFECTING RIVALRY AMONG COMPETITORS |
|To what extent does pricing or non- price competition (e.g., advertising) erode profitability of a typical firm in this industry |
|Degree of seller concentration? | | | |
| | | | |
| | | | |
| | | | |
|Rate of industry growth? | | | |
|Significant cost differences among | | | |
|firms? | | | |
|Excess capacity? | | | |
|Cost structure of firms: sensitivity of| | | |
|costs to capacity utilization? | | | |
|Degree of product differentiation among| | | |
|sellers? Brand loyalty to existing | | | |
|sellers? Cross- price elasticities of | | | |
|demand among competitors in industry? | | | |
|Buyer’s cost of switching from one | | | |
|competitor to another? | | | |
|Are prices and terms of sales | | | |
|transactions observable? | | | |
|Can firms adjust prices quickly? | | | |
|Large and/or infrequent sales orders? | | | |
|Use of facilitating practices (price | | | |
|leadership, advance announcement of | | | |
|price changes)? | | | |
|History of “cooperative pricing”? | | | |
|Strength of exit barriers? | | | |
|FACTORS AFFECTING THE THREAT OF ENTRY |
|To what extent does the threat or incidence of entry work to erode the profitability of a typical firm in this industry? |
|Significant economies of scale? | | | |
|Importance of reputation or established| | | |
|brand loyalties in purchase decisions? | | | |
|Entrants’ access to distribution | | | |
|channels? | | | |
|Entrants’ access to raw materials? | | | |
|Entrants’ access to | | | |
|technology/know-how? | | | |
|Entrants’ access to favorable | | | |
|locations? | | | |
|Experienced-based advantages of | | | |
|incumbents? | | | |
|Network externalities: demand-side | | | |
|advantages to incumbents from large | | | |
|installed base? | | | |
|Government protection of incumbents? | | | |
|Perception of entrants about expected | | | |
|retaliation of incumbents/reputations | | | |
|for “toughness”? | | | |
|FACTORS AFFECTING OR REFLECTING PRESSURE FROM SUBSTITUTE PRODUCTS AND SUPPORT FROM COMPLEMENTS |
|To what extent does competition from substitute products outside the industry erode the profitability of a typical firm in the industry? |
|Availability of close substitutes? | | | |
|Price-value characteristics of | | | |
|substitutes? | | | |
|Price elasticity of industry demand? | | | |
|Availability of close complements? | | | |
| | | | |
|Price- value characteristics of | | | |
|complements? | | | |
|FACTORS AFFECTING OR REFLECTING POWER OF INPUT SUPPLIERS |
|To what extent do individual suppliers have the ability to negotiate high input prices with typical firms in this industry? To what extent do input prices deviate from those that would prevail|
|in a perfectly competitive input market in which input suppliers act as price takers? |
|Is supplier industry more concentrated | | | |
|than industry it sells to? | | | |
|Do firms in industry purchase | | | |
|relatively small volumes relative to | | | |
|other customer of suppliers? Is typical| | | |
|firms’ purchase volume small relative | | | |
|to other customers of supplier? Is | | | |
|typical firms’ purchase volume small | | | |
|relative to sales of typical supplier? | | | |
|Few substitutes’ of suppliers’ inputs? | | | |
|Do firms in industry make relationship-| | | |
|specific investments to support | | | |
|transactions with specific suppliers? | | | |
|Do suppliers pose credible threat of | | | |
|forward integration into the product | | | |
|market? | | | |
|Are suppliers able to | | | |
|price-discriminate among prospective | | | |
|customers according to ability/ | | | |
|willingness to pay for inputs? | | | |
|FACTORS AFFECTING OR REFLECTING POWER OF BUYERS |
|To what extent do individual buyers have the ability to negotiate low purchase prices with typical firms in this industry? To what extent do purchase prices differ from those that would |
|prevail in a market with a large number of fragmented buyers in which buyers act as price takers? |
|Is buyers’ industry more concentrated | | | |
|than industry it purchase from? | | | |
|Do buyers purchase in large volumes? | | | |
|Does a buyer’s purchase volume | | | |
|represent large fraction of typical | | | |
|seller’s sales revenue? | | | |
|Can buyers find substitute for | | | |
|industry’s product? | | | |
|Do firms in industry make | | | |
|relationship-specific investment to | | | |
|support transactions with specific | | | |
|buyers? | | | |
|Is price elasticity of demand of | | | |
|buyer’s product high or low? | | | |
|Do buyers pose credible threat of | | | |
|backward integration? | | | |
|Does product represent significant | | | |
|fraction of cost in buyer’s business? | | | |
|Are prices in the market negotiated | | | |
|between buyers and sellers on each | | | |
|individual transaction or do sellers | | | |
|post a “take-it-or-leave it” price that| | | |
|applies to all transactions | | | | displayed 300 characters
