Question

For this week's discussion, the focus will be on examining Porter's Five Forces as a tool for looking at the pressures on profits. Specifically, you will be looking at defining Porter's Five Forces and applying this tool to the market structures and pressures on profits of a chosen group of firms.

Instructions

Review the two groups of firms below:

• Group 1: the accommodations industry (e.g., Hilton, Marriott Bonvoy, InterContintental Hotel Group).
• Group 2: the wireless telecommunications industry (e.g., Verizon, AT&T, T-Mobile).

In your discussion post, address the following:

• Which of these groups operates in a monopolistic competitive industry? Which operates in an oligopoly?
  • How did you determine the classification of each group? That is, what are the key characteristics of each group that indicate the type of industry it operates in?
• Chose one of the groups and use Porter's Five Forces to analyze the pressures on profits for your chosen group's firms.
  • If you want to dig deeper into how one of the firms views the challenges it faces, you might want to look at the firm's investor page.

Note: In your discussion posts for this course, do not rely on Wikipedia, Investopedia, or any similar website as a reference or supporting source.

Answer 1

The accommodation industry is the type of monopolistic competition.

This is because

The hotels are not perfect substitutes still they are substitutable. This is also a feature of monopolistic competition.

This means that consumers might prefer a chain of hotels over others because of the differentiated service they are offering which would differentiate them from the other hotels. Eg: check in time flexibility etc.

2) They are not price takers ie they though are influenced by prices in the market, but do not take prices,rather they fix them according to their brand name etc.

3) There are less barriers of entry in hotel ie easy entry and exit.

All these reasons state that accommodation industry is monopolistic competition.

The wireless connection industry in USA is Oligopoly. Oligopoly is the type of market structure where there are many buyers and few sellers. each seller would have a major share and is able to influence the prices of the market based on its decisions.
The characteristics are
1) Few firms : wireless communication industry has less number of companies or brands and each has a significant market share.
2) Barriers to entry - exit : there are barriers because of high costs of entry in the sector.
3) selling heterogeneous or homogeneous goods: the telecom firms are selling wireless connection which are heterogeneous based on their pay package
The second group is being chosen here ie the wireless communication industry.

Michael porters five forces of analysis and significance of each to the said industry is as

1) Availability of substitutes: the substitutes available are less . Hence the threat is less in this industry.
2)
Entry of competition: The entry in such business require investment in infrastructure and high costs and risks which is a barrier to entry for many of the small firms.

Therefore because of the high costs and risks, less firms enter the business. Therefore the competition would automatically be reduced.  

3) Bargaining power of buyers: Buyers are not able to influence the market because of their huge number and hence very less share of each buyer. So they have less bargaining power.

Also if they wish to change the brand or company, the incentive to do so is less, as there ar every few options.   

4) Bargaining power of suppliers: The suppliers are less, and are supplying similar goods with little variation.

So this leads to higher competition which means that seller would opt for both non price and price competition like freebies, unlimited minutes, better network etc.

5) Rivalry among existing companies: since the number of sellers are very less, they compete to gain mroe and more market share.

This could also be done by colluding to form cartels and acting as monopoly to set prices and output.

(You can comment for doubts)