The Nature of Competition in the Real World final

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The Nature of Competition in the Real World : 

The Nature of Competition in the Real World Presenters: Natasha Amin - 56 Birva Desai - 16 Geeta Naik - 26 Ami Kothawala - 6 Kalpesh Mehta - 36 Mayur Satam - 46

Types of Competition : 

Types of Competition Perfect Competition Monopolistic Competition Oligopoly Monopoly

Types of Competition : 

Types of Competition Perfect Competition: Not so easy to find these days. Something that comes close may be buying identical looking apples from a farmers market, or buying an iPod on eBay. Monopolistic Competition: is a form of imperfect competition where many competing producers sell products that are differentiated from one another Most companies fall under this category. E.g.: Nike, Nokia, Sony etc. Oligopoly: The word is derived by analogy with “monopoly” from the Greek Oligoi (Few) + Polein (To sell). Many companies fit into this category as well. Oil, cruise, telecommunications etc. Monopoly: The word is derived from the Greek word Monos (alone or single) + Polein (To sell). It's hard to find a real monopoly these days unless it's owned by the government in some way and they want to control the market.

Rivalry : 

Rivalry In the traditional economic model, competition among rival firms drives profits to zero. Firms strive for a competitive advantage over their rivals. When a rival acts in a way that elicits a counter-response by other firms, rivalry intensifies. The intensity of rivalry commonly is referred to as being cutthroat, intense, moderate, or weak, based on the firms' aggressiveness in attempting to gain an advantage. In pursuing an advantage over its rivals, a firm can choose from several competitive moves like: Changing Prices Improving product differentiation Creatively using channels of distribution

Intensity of rivalry influenced : 

Intensity of rivalry influenced Large number of firms Similar market share Leading to struggle for market leadership Slow market growth Causes firm to fight Revenue increases because of increasing market share High fixed cost Increases rivalry High level of production leads to a fight for market share High storage cost / highly perishable products Producer sell goods as soon as possible Competition for customers intensifies

Slide 7: 

Low switching cost Increases rivalry Freely switch from 1 product to another Low levels of product differentiation Associated with higher level of rivalry Brand identification constraints rivalry Strategic stakes are high When firm losses market position Intensifies rivalry High exit barriers Place high cost on product Firm competes Industry shakeout Growing market induces new firm to enter Supply increases

Slide 8: 

Threats of substitutes

Slide 9: 

Incurred when customer switches to different types of product

Buyer Power : 

Buyer Power Buyer power can be explained as a situation when a group of firms because of its dominant position as a purchaser of a product or service is able to obtain more favorable terms than those available to other buyers. Some factors affecting buyer power are: Size of buyer - larger buyers will have more power over suppliers. Number of buyers - when there are a small number of buyers, they will tend to have more power over suppliers. e.g. The Department of Defense is an example of a single buyer with a lot of power over suppliers. Purchase quantity - When a customer purchases a large quantity of a suppliers output, it will exercise more power over the supplier.

Buyer Power : 

Buyer Power Buyers power is High/Strong: There a few, large players in the market, as it is the case with retailers and grocery stores. There is a large number of undifferentiated, small suppliers, such as small farming businesses supplying large grocery companies. Buyer is well-educated regarding the product Product is undifferentiated Substitutes are available Buyer power is Low/ Weak: Buyers are less concentrated than sellers Buyer switching costs are high Buyer is not price sensitive Buyer is uneducated regarding the product

Supplier Power : 

Supplier Power In Porter's five forces, supplier power refers to the pressure suppliers can exert on businesses by raising prices, lowering quality, or reducing availability of their products. Some factors affecting Supplier power are Supplier concentration - The fewer the number of suppliers for a given product, the more power they will have over the company. Switching costs - suppliers become more powerful as the cost to change to another supplier increases. Uniqueness of product - suppliers that produce products specifically for a company will have more power than commodity suppliers.

Supplier Power : 

Supplier Power Supplier Power is High/Strong Where the switching costs are high e.g. switching from one Internet provider to another High power of brands e.g. McDonalds, British Airways, Tesco Suppliers concentrated e.g. Drug industry's relationship to hospitals Supplier Power is Weak/low: Many competitive suppliers - product is standardized e.g. Tire industry relationship to automobile manufacturers. Purchase commodity products Concentrated purchasers Customers Weak

Barriers to Entry / Threat of Entry : 

Barriers to Entry / Threat of Entry Government creates barriers Although the principal role of the government in a market is to preserve competition through anti-trust actions, government also restricts competition through the granting of monopolies and through regulation. Until the 1970's, the markets that banks could enter were limited by state governments. As a result, most banks were local commercial and retail banking facilities. Banks competed through strategies that emphasized simple marketing devices such as awarding toasters to new customers for opening a checking account. Patents and proprietary knowledge serve to restrict entry into an industry Ideas and knowledge that provide competitive advantages are treated as private property when patented, preventing others from using the knowledge and thus creating a barrier to entry.

Barriers to Entry / Threat of Entry : 

Barriers to Entry / Threat of Entry Asset specificity inhibits entry into an industry Asset specificity is the extent to which the firm's assets can be utilized to produce a different product. When an industry requires highly specialized technology or plants and equipment, potential entrants are reluctant to commit to acquiring specialized assets that cannot be sold or converted into other uses if the venture fails. So therefore, asset specificity provides a barrier to entry. Organizational (Internal) Economies of Scale The most cost efficient level of production is termed Minimum Efficient Scale (MES). This is the point at which unit costs for production are at minimum. If MES for firms in an industry is known, then we can determine the amount of market share necessary for low cost entry or cost parity with rivals.

Limitations of Porter’s Model : 

Limitations of Porter’s Model A predominant model created in the eighties, it was based mainly on the strong market economic situation at the time Relatively static in nature and hence unable to cope up with the dynamic world of today Lacks the larger framework of management tools, techniques and theories

Limitations of Porter’s Model : 

Limitations of Porter’s Model E.G : The computer and software industry often considered to be highly competitive, the structure is being constantly revolutionized by innovations to which the Porter’s theory cannot be applied

Relationship between porter’s 5 force & 6 force model : 

Relationship between porter’s 5 force & 6 force model Extension to 5 force model Less popular & not accepted Not definite & not specific 6th factor- Power of other Stake Holders

6 factors : 

6 factors Complementors Affect the business because of the changes The Government Impact on 5 forces Direct or indirect influence

6 factors : 

6 factors The Public Strong influence Share holders Increased significantly Employees Strong influence. E.g.. Automobile sector in US

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