BU481 Chapter Notes - Chapter 4: Product Differentiation, Network Effect, Perfect Competition
Document Summary
There are five forces that will determine an industry(cid:495)s profitability. The weaker these forces, the greater the opportunity for superior performance by firms within the industry. The stronger these forces are, the more difficult it will be. power of suppliers. Substitutes: threat of new entry, the greater the number of competitors, the closer the industry is to perfect competition, the fewer the competitors, the greater the likelihood of higher profits, there are 6 major barriers, economies of scale. As the absolute volume of production increases, unit costs per product tend to decrease, resulting in economies of scale. Network effects the likelihood of customers purchasing a product. This poses a barrier to entry by either forcing new entrants to come increases with volume into the industry at a larger scale with great risk, or at a smaller scale with cost disadvantage: product differentiation. Benefits come from brand recognition and customer loyalty.
