Describe the factors in Michael Porter's "Five Forces Model" that affect the ability of any firm in an industry to earn a profit. Explain in detail
Porter’s Five Forces of competition framework can be a valuable tool in analyzing an industry for an assessment of the profit potential in this industry. According to Porter (2004:7),”The five forces framework allows a firm to see through the complexity and pinpoint those factors that are critical to competition in its industry, as well as to identify those strategic innovations that would most improve the industry’s and its own profitability.” Five forces that affect firm’s ability to earn profits in an industry are rivalry among existing firms, threat of potential entrants, threat of substitutes, bargaining power of suppliers, and bargaining power of buyers. These five competitive forces can influence prices, costs, capital expenditures and therefore a company’s profitability.
Competitive Rivalry among existing firms:
As the competition among the firms in an industry increase the capacity of the firm to earn profits decreases. There are many factors that influence the competitive rivalry among existing firms. Competitors rivalry is high when markets are undifferentiated, there are ...
Porter's "Five forces model" is summarized.