Three of Porter's five forces refer to competition from external sources. The remainder are internal threats.
Porter's five forces include - three forces from 'horizontal' competition:
* threat of substitute products,
* the threat of established rivals,
* and the threat of new entrants;
and two forces from 'vertical' competition: the bargaining power of suppliers and the bargaining power of customers
The threat of the entry of new competitors
Profitable markets that yield high returns will attract new firms. This results in many new entrants, which eventually will decrease profitability for all firms in the industry. Unless the entry of new firms can be blocked by incumbents, the abnormal profit rate will fall towards zero (perfect competition).
* The existence of barriers to entry (patents, rights, etc.) The most attractive segment is one in which entry barriers are high and exit barriers are low. Few new firms can enter and non-performing firms can exit easily.
* Economies of product differences
* Brand equity
* Switching costs or sunk costs
* Capital requirements
* Access to distribution
* Customer loyalty to established brands
* Absolute cost* Industry profitability; the more profitable the industry the more attractive it will be to new competitors
The intensity of competitive rivalry
For most industries, the intensity of competitive rivalry is the major determinant of the competitiveness of the industry.
* Sustainable competitive advantage through innovation
* Competition between online and offline companies; click-and-mortar -v- slags on a bridge
* Level of advertising expense
* Powerful competitive strategy
* The visibility of proprietary items on the Web
 used by a company which can intensify competitive pressures on their rivals. How will competition react to a certain behavior by another firm? Competitive rivalry is likely to be based... [continues]
Cite This Essay
(2010, 12). Porters 5 Forces. StudyMode.com. Retrieved 12, 2010, from http://www.studymode.com/essays/Porters-5-Forces-514349.html
"Porters 5 Forces" StudyMode.com. 12 2010. 12 2010 <http://www.studymode.com/essays/Porters-5-Forces-514349.html>.
"Porters 5 Forces." StudyMode.com. 12, 2010. Accessed 12, 2010. http://www.studymode.com/essays/Porters-5-Forces-514349.html.