Are Rivalry Amongst Existing Competitors?

Economic analysis of a monopolistically competitive industry is more complicated than that of pure competition because:

Competition is prevalent in various aspects of life, including sports, school, and jobs. Everyone at some point in their lifetime will have to compete against others in order to achieve a goal or earn a prize. It’s how the world has worked for a long time; it’s survival of the fittest and this minor competition between everyone is how we have continuously gotten smarter, faster, and stronger. Competition is necessary to a certain degree, but how much is too much? It’s definitely not a bad thing, and as long as there’s a healthy amount, it can be beneficial because it fosters self-improvement, and it will push people to go all out and try their absolute best.

An industry product can be substituted by a substitute product which has the same or similar function by a different means. A substitute can limit industry profitability and growth. Porter (2008) gives several key elements on determining the threat.

Porter’s five forces model is a tool that simple but powerful that help business people understand the relative attractiveness of an industry and the industry’s competitive pressures. Porter alluded to these forces as the micro environment, to balance it with the more broad term macro environment. They comprise of those strengths near an organization that influence its capacity to serve its clients and make a benefit. An adjustment in any of the forces ordinarily require a business unit to re-evaluate the market place given the general change in industry information. The general business engaging quality does not mean that each firm in the business will give back the same benefit. Buyer powers, supplier power, threat of substitute product and

Porter’s 5-Forces Model: A method for examining the competitive environment for a company or industry. It specifies and evaluates threats from new entrants, suppliers, buyers, and substitutes in the arena of competition.

Porter’s Five Forces is defined as threats of new entrants, bargaining power of suppliers, power of buyers, the threat of substitutes and rivalry among existing competitors. New entrants into the industry aim to gain market share from rivals, so the intensity of competition may require to make changes on current strategy of marketing to maintain existing market share. The bargaining

Porter’s model aims to enable managers not only to understand their industry environment but also to shape their firm’s strategy. The five competitive forces are threat of entry, power of suppliers, power of buyers, threat of substitutes, and rivalry among existing competitors. “As a rule of thumb, the stronger the five forces, the lower the industry’s profit potential- making the industry less attractive to competitors. The weaker the five forces, the greater the industry’s profit potential – making the industry more attractive” (Rothaermel, 2013, p. 65). It is recommended that managers position their company in an industry in such a way that relaxes the constraints of strong forces and

51]. The model suggests a successful businesses strategy to wart-off competition by careful application of an “environmental analysis”. The Porter model proposes five elemental strategic defenses against five potential forces: threat of new entrants, rivalry among competitive firms, bargaining power of suppliers, bargaining power of buyers, and the threat of substitution products.

Successful use of the Porter Model Analysis includes identifying the sources of competition, the strength and likelihood of that competition existing, and strategic recommendations for the action a company should take to develop barriers to the various forms of competition (Prahalad and Gary, 1990). With the realization about intensity and power of competitive forces, organizations can develop options to influence them in a way that improves their own competitive position. The result could be a new strategic option, e.g. a new positioning; differentiation for competitive products of strategic partnerships.

Michael E. Porter, associate professor published the article titled “How Competitive Forces shape Strategy” in Harvard Business Review in 1979. This article is retitled as “The Five Competitive Forces That Shape Strategy” and published in Harvard Business Review in 2008. Michael E. Porter developed the model of Five Competitive Forces which is defined as “Competitive Strategy – Techniques for Analyzing Industries and Competitors”. It has become a main device for analyzing an organizations structure in strategic practices.

To identify an appropriate strategy for a given industry one must look into the external and internal factors influencing the company. This Schnell Air report has been conceived with a triple objective in mind: to provide the Schnell Air Board with (i) a brief and compelling synthesis of Schnell Air’s competitive market environment overview since it entered the Innsbruck – Turin route in January 1997 as compared to prior to its entry, (ii) analyse the available data to establish the extent of predatory pricing strategies being plotted by the two existing duopolies – Air Turin and Innsbruck Air and (iii) by using a Game Theoretic approach model and highlight the affect of a 4th daily service on the same route given the

The threat of substitutes is the availability of a product that the consumer can purchase instead of the industry’s product (Free management books, n,d ). A substitute product is a product that produced by other industry and offer similar benefits to the customer as the product produced by the firms within the industry. The threat of substitutes can affect the competitive environment for the firm in that industry and also influence the profitability of the industry. This threat affects profitability of the industry because the consumers can choose to purchase similar product from other industry to instead of the company’s product. Besides that, the more the close substitute product can make the industry more competitive and decrease the profit potential of the firm in the industry whereas the less the close substitute product can make the industry less competitive and

The threat of substitutes: where it refers to substitute product as those that are available in other industry which can also fulfil the need and want of the consumers. It can affect competition in an industry by placing an invisible ceiling on prices which companies within the industry can charge, due to the fact that if the cost of substitute is low then the consumers will tend to purchase substitutes, therefore limiting the prices that a company can place on certain items to gain maximum profit. For example, lemonade can be substituted for a soft drink. Generally, competitive pressures arising from substitute products increase as the relative price of substitute products declines and as consumer 's switching costs decrease.

The model of the Five Competitive Forces was developed by Michael E. Porter in his book „Competitive Strategy: Techniques for Analyzing Industries and Competitors“ in 1980. Since that time the ‘five forces tool’ has become an important method for analyzing an organizations industry structure in strategic processes.

Threat of substitutes: A substitute to the services of the industry would be that the customer organization employ & train the in house staff to come up with such services. The company may rely on the existing staff but market players provide advantage by releasing the core employees from doing non-administrative processes. In all there is a weak threat of substitutes in the industry (Datamonitor,2011).