Chapter 3.8, Problem 3.2ARQ

Explanation of Solution

Five Forces:

• Bargaining power of customers
• Threat of substitutions
• Bargaining power of suppliers
• Threat of new entrants
• Rivalry

Bargaining power of customers:

It is described as market of output. The customer can buy the products from many suppliers, so the buyer has alternative option.

The factors, which affect the bargaining power of customers, are:

• Switching cost of the buyer
• Availability of buyer information
• Availability of substitute product existing in the market.

Threat of substitutions:

The first force is threat of substitution. It affects the customers to found different way of what you do. It uses different technology to achieve the same economic need.

The factors, which affect the threat of substitution, are:

• Switching cost of the buyer
• Substitute product existing in the market
• Price performance of substitute.

Bargaining power of suppliers:

It is described as market of input. The person who makes the product will sell on the flour. There is no option to buy from others.

The factors, which affect the bargaining power of suppliers, are:

• Specifying the strength of distribution channel
• Effect of cost and differentiation on inputs
• Switching cost of the supplier, this is relative to the switching cost of the firm.

Threat of new entrants:

The people may affected by the entry to your market. If the new competitor enters into your market with more wealth, then they will quickly weaken your position. Suppose we have strong barrier then we preserve a strong position...