Business Strategy Chapter 4 Five Forces Analysis

(1) rivalry among current competitors,
(2) threat of new entrants,
      1. Entrant faces high sunk costs
          2. Incumbents have a competitive advantage.
          3. Entrant faces retaliation.
(3) substitutes and complements,
     1.  cross-price elasticity of a potential substitute
     2.  substantial switching costs between products
(4) power of suppliers, and
     1.  availability of reliable information on suppliers
     2.  well-known information on supplier prices
     3.  suppliers cannot easily segment the market and thus struggle to price-discriminate
(5) power of buyers.
But duopolies are far less competitive—and typically far more profitable—than the alternative of many firms competing. Two additional considerations include whether (1) the incentives to “fight” are low and (2) coordination between competitors is possible.
Coordination that helps reduce pressures to engage in aggressive price cutting may be possible between competitors. In the extreme, firms may explicitly coordinate pricing and/or output. OPEC is a moderately successful cartel of oil-producing nations that tries to control the price of oil. (reduce prod. increase price.)
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