A framework for diagnosing industry structure, built around five competitive forces that erode long-term industry average profitability. The industry structure framework can be applied at the level of the industry, the strategic group (or group of firms with similar strategies) or even the individual firm. Its ultimate function is to explain the sustainability of profits against bargaining and against direct and indirect competition.
IN RESPECT TO THE INFLUENCE OF GOVERNMENT: Laws governing rivalry: A third facet of institutional context is the legitimacy of competition that is both nurtured and enforced. The focus here is on the laws governing rivalry that is at the heart of most market economies: How does a state ensure that economic bases of competition prevail rather than ‘unfair trading practices?’. Although less developed in the emerging economy literature, the existence of contraband trade is recognized, for example in Brazil (Nelson, 1990), and along Porter’s Five Forces Framework with it the recognition of the need for at least one facet of legitimate rivalry: strong intellectual property regimes that are a ‘safeguard against the illegal use or application of patented technology and copyrights by local imitators’ (Isobe et al.,2000). The FFF presumes that rivalry in its economic form is not impeded by forces ‘external’ to the product marketplace. The model transports, perhaps inadvertently, a dominant assumption of Bain/Mason paradigm (Bain, 1968; Mason, 1939): legally enforced rules pertaining to Antitrust (e.g. price discrimination, collusion and unfair trade practices) and to intellectual property ensure that firms do not have to worry about unfair means of competition. However, moving beyond the established institutional confines of advanced economies calls into question this pivotal assumption. In emerging economies laws pertaining to legitimate rivalry may not exist and the informal norms may not be readily transparent. This...
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