BUSI 1600 Lecture Notes - Lecture 8: Profit Margin, Switching Barriers, Product Differentiation
Document Summary
Industries vary in overall profitability or attractiveness due to differences in their structures. 5 forces that determine the overall structure of an industry: entry barriers, buyer power, supplier power, threat of substitutes, competitive rivalry. Most start-ups occur in industries associated with high rates of failures. Industries with lower rates of failure are characterized by fewer startups. High entry barriers serve to keep competitors out of an industry. Veterinary clinics have a high survival rate but require many years of specialized training. The residential construction industry is known for a high rate of start-ups and failures; entry barriers are low. Many of these firms are operated from the home; require only a few inexpensive tools, and minimum capital. Entry barriers consist of structural and retaliatory barriers. Economies of scale: per-unit reductions in cost that result from high volume. The presence of economics of scale forces competitors to enter on a large scale or accept a cost disadvantage.
