Question

Using Porter’s Five Forces Framework, highlight the factors that would reduce sustainable industry profits (to near zero economic profit).  These factors apply to any industry, but you may find it helpful to think of the airline industry in making your selections.

Firms seeking to enter the industry faces high entry costs	Customers view the industry products as commodities
Firms must meet stringent government requirements	Industry is highly concentrated with a few firms controlling much of the market
The industry does not benefit from economies of scale	Customers can easily compare the product and prices of all firms
There are hundreds of thousands of customers who have little power as buyers	Customers can easily switch purchases among firms
Customers have little brand loyalty and low switching costs	Employees are highly unionized
Incumbent firms enjoy a good reputation for value and service	Only a few firms are suppliers of the largest factors of production
Customer loyalty programs tie customers to incumbent firms	Substitutes for the firms’ product(s) are widely available and inexpensive
Large incumbent firms benefit from positive network effects	Many industry costs are “sunk”

Answer 1