Chapter 3 - Analyzing Global Industries Flashcards Preview

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Flashcards in Chapter 3 - Analyzing Global Industries Deck (4):
1

Defining the market

1. Deciding which goods to include
2. Identifying the firms competing in the market
3. Indicating the geographical area where those firms are competing

2

Different market structures

- Perfect competition
o Many firms supply identical products – no barriers to entry
o Firms cannot set own prices – determined by market
o Products are seen as identical by consumers


- Monopoly
o One firm, high barriers to entry and unique products (E.g. utilities)
o Production is on a very large scale


- Monopolistic competition
o Large number of firms, no barriers to entry, small product differentiation
o Large number of outlets, easy of entry (E.g. Convenience stores)


- Oligopoly
o Few number of firms, high barriers to entry, differentiated products

3

Market power and concentration

- The distribution of power among firms in an industry is assessed by the level of market concentration which is measured by the market share

- Market concentration determines competitive pressures – high concentration indicates low competition – firms can determine pricing

- Monopoly – highest level of concentration – one firm holds 100% of market

- Perfect competition – power is equally distributed, market concentration is low

- Oligopoly – a few firms dominate market, concentration is high

- Measuring market concentration:
o Concentration ratio: Taking share of largest firm in industry sales/output
o HHI Index: Summing squares of individual market shares of all firm in market

4

Porter’s 5 forces

- Industry rivalry
o Varies in form and intensity between industries and over time
o Competition – price, advertising, promotion, distribution, new products
o Dependent on: Number of firms, size of firms, market growth rate, product differentiation



- New entrants
o Profitability of new entrants depends on barriers to entry – cost barriers, legal barriers
o Economies of scale


- Substitutes
o Goods produced in different industry but delivered in a different way
o Influenced by cost and ease with which customer can switch to the substitute product



- Bargaining power of customers
o Where many firms in the industry have a small number of large customers – buyers can have more power as a loss in a single client can impact profits
o When customers only have a few suppliers – less bargaining power
o Depends on product differentiation and ease of switching



- Bargaining power of suppliers
o When an industry comprises of a small number of firms facing a large number of customers – the industry is more powerful
o Suppliers can get away with price increases, reduction in quality and worsening of terms and conditions of sale


- Complementary products
o Products used together
o Supply/demand is determined by how well the products work together