The intensity of industry competition and an industry’s profit potential are a function of which of the following forces of competition?Question 1Answera.Threats posed by new entrantsb.Power of stockholdersc.Power of employeesd.Global economic conditions
Question
The intensity of industry competition and an industry’s profit potential are a function of which of the following forces of competition?Question 1Answera.Threats posed by new entrantsb.Power of stockholdersc.Power of employeesd.Global economic conditions
Solution
The intensity of industry competition and an industry's profit potential are primarily a function of the following forces of competition:
a. Threats posed by new entrants: New entrants bring new capacity and desire to gain market share that puts pressure on prices, costs, and the rate of investment necessary to compete. Particularly if the new entrant has diversified from another market, it can leverage existing capabilities and cash flows to shake up competition.
However, the other options listed (b. Power of stockholders, c. Power of employees, d. Global economic conditions) are not typically considered direct forces of competition according to standard business models like Porter's Five Forces.
Porter's Five Forces model, for example, identifies the following key areas of competition:
- Threat of new entrants
- Bargaining power of suppliers
- Bargaining power of buyers
- Threat of substitute products or services
- Rivalry among existing competitors
So, while stockholders, employees, and global economic conditions can indirectly affect competition and profit potential, they are not the primary forces at play.
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