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Rivalry In the traditional economic model, competition among rival firms drives profits to zero. But competition is not perfect and firms are not unsophisticated passive price takers. Rather, firms strive for a competitive advantage over their rivals. The intensity of rivalry among firms varies across industries, and strategic analysts are interested in these differences.
The Concentration Ratio CR is one such measure. A high concentration ratio indicates that a high concentration of market share is held by the largest firms - the industry is concentrated.
With only a few firms holding a large market share, the competitive landscape is less competitive closer to a monopoly.
A low concentration ratio indicates that the industry is characterized by many rivals, none of which has a significant market share.
These fragmented markets are said to be competitive. The concentration ratio is not the only available measure; the trend is to define industries in terms that convey more information than distribution of market share.
If rivalry among firms in an industry is low, the industry is considered to be disciplined. Explicit collusion generally is illegal and not an option; in low-rivalry industries competitive moves must be constrained informally. However, a maverick firm seeking a competitive advantage can displace the otherwise disciplined market.
When a rival acts in a way that elicits a counter-response by other firms, rivalry intensifies. In pursuing an advantage over its rivals, a firm can choose from several competitive moves: Changing prices - raising or lowering prices to gain a temporary advantage.
Improving product differentiation - improving features, implementing innovations in the manufacturing process and in the product itself.
Creatively using channels of distribution - using vertical integration or using a distribution channel that is novel to the industry. For example, with high-end jewelry stores reluctant to carry its watches, Timex moved into drugstores and other non-traditional outlets and cornered the low to mid-price watch market.
Sears set high quality standards and required suppliers to meet its demands for product specifications and price. The intensity of rivalry is influenced by the following industry characteristics: A larger number of firms increases rivalry because more firms must compete for the same customers and resources.
The rivalry intensifies if the firms have similar market share, leading to a struggle for market leadership. Slow market growth causes firms to fight for market share.
In a growing market, firms are able to improve revenues simply because of the expanding market. High fixed costs result in an economy of scale effect that increases rivalry. When total costs are mostly fixed costs, the firm must produce near capacity to attain the lowest unit costs.
Since the firm must sell this large quantity of product, high levels of production lead to a fight for market share and results in increased rivalry. High storage costs or highly perishable products cause a producer to sell goods as soon as possible.
If other producers are attempting to unload at the same time, competition for customers intensifies. Low switching costs increases rivalry. When a customer can freely switch from one product to another there is a greater struggle to capture customers.The Five Forces Model was devised by Professor Michael Porter.
The model is a framework for analysing the nature of competition within an industry. The short video below provides an overview of Porter's Five Forces model and there are some additional study notes below the video. Porter's Five Forces A MODEL FOR INDUSTRY ANALYSIS.
The model of pure competition implies that risk-adjusted rates of return should be constant across firms and industries.
Porter’s five forces model is an analysis tool that uses five industry forces to determine the intensity of competition in an industry and its profitability level.  After gathering all the information, you should analyze it and determine how each force is affecting an industry.
For example, if there are many companies of equal size. About attheheels.com attheheels.com is a collaborative research and analysis website that combines the sum of the world's knowledge to produce the highest quality research reports for over 6, stocks, ETFs, mutual funds, currencies, and commodities.
Porter's Five Forces Model for Industry Analysis Essay. This essay is an attempt to apply the Five Forces Model for industry analysis and business strategy development formed by Michael E.
Porter of Harvard Business School in that draws upon industrial organization (IO) economics to derive five forces that determine the competitive intensity and therefore attractiveness of a market. Porter’s Five Forces Analysis can be illustrated in the following manner: Threat of new entrants in film, television, and music entertainment industry has been traditionally moderate due .