COMMERCE 4PA3 Chapter 4: Chapter 4 Notes
22 Feb 2019
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Pest analysis: examines political, economic, social, and technological forces that impact the industry. Porter"s 5 forces model: attractiveness is related to average industry profitability the higher the average industry profitability, the more attractive the industry. The five forces that shape industry attractiveness: rivalry among existing competitors, threat of new entrants, threat of substitutes, bargaining power of suppliers, bargaining power of buyers. Threat of entry: the greater the number of competitors, the closer the industry is to perfect competitions. Supply-side economies of scale: wherein the absolute volume of production increases, unit costs per product will decreases. Demand-side economies of scale aka network effects: when the likelihood of customers purchasing a product or service increases with volume. For example, ebay with its online auction industry. Diseconomies of scale: occurs when the average cost per unit of production moves through an optimal level of production and costs begin to rise.
