How Does Industry Structure Affect Intensity of Competition?

Topics: Economics, Competitor analysis, Investment Pages: 2 (451 words) Published: May 10, 2011
Industry structure affects intensity of competition in the following ways: Opportunity potential – Profitable market is likely to attract firms to invest in available opportunity, the more the number of firms in the market, the more intense of the competition. Ease of entry – When entry into an industry is relatively easy, more firms are likely to invest in that. , including some marginal ones, are attracted to it. However, committed members of the industry may adopt strategies to discourage potential entrants to break into their territory. This may enhance competition. Nature of product – If products offered by different firms are perceived by customers to be, firms are forced to reduce price or enhance service quality. In that case, competition can be strong. Exit Barriers - It may be difficult for a firm to get out of a particular business. Reason could be high investment in assets or high cost of discharging commitments for example. This may increase intensity of competition as number of competitors in the market remains high. Homogeniety of the Market - When the entire market represents one large homogeneous unit, the intensity of competition is much greater than when the market is segmented. Industry Structure - When the number of firms active in a market is large, some of the firms may aggressively seek an advantageous position. Such aggression leads to intense competitive activity as firms retaliate. Industry structure affects intensity of competition in the following ways: Opportunity potential – Profitable market is likely to attract firms to invest in available opportunity, the more the number of firms in the market, the more intense of the competition. Ease of entry – When entry into an industry is relatively easy, more firms are likely to invest in that. , including some marginal ones, are attracted to it. However, committed members of the industry may adopt strategies to discourage potential entrants to break into their territory. This may enhance...
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