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The collective strength of these forces determines the ultimate profit potential in
the industry, where profit potential is measured in terms of long run return on
invested capital.
Structural Determinants of the Intensity of Competition - All five competitive
forces jointly determine the intensity of industry competition and profitability, and
the strongest force or forces are governing and become crucial from the point of
view of strategy formulation.
Threat of Entry
Barriers to Entry Major sources of barriers to entry:
o Economies of Scale the decline in unit costs of a product as the absolute
volume per period increases.
o Product Differentiation
o Capital Requirements
o Switching Costs
o Access to Distribution Channels
o Cost Disadvantages Independent of Scale
o Government Policy
Expected Retaliation
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Shifting Rivalry
Exit and Entry Barriers
Pressure from Substitute Products
Bargaining Power of Buyers:
circumstances hold true:
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