Question

Describe and comment on the five major groups of “forces” or variables which make up M.E. Porter’s competition model. How are these variables inter-related?

Answer 1

Answer- The five forces are as follows

1. Threat of new enterants.

2. Bargaining power of suppliers.

3. Bargaining power of buyers.

4. Threat of substitute product.

5. Existing rivalry in the industry.

How these variables are interrelated?

Answer- Threat of new enterants, which means that the business a firm is doing or the industry in which it is operating has what level of attraction in it. It means that whether this industry attracts new enterants or not. If it attract new enterants more it means that inputs will be demanded more which in turn will make the suppliers' business more attractive and thus there will be more suppliers and they eventually will form unions, increase prices and etc. Now if there are new enterants it means that the level of the monopoly power will decrease because to compete with new competition prices needs to be competitive because more enterants means more options for buyers and more substitute products as well, which will increase the bargaining power of the buyers. Additionally, all of this will increase the industry rivalry.

Vice-versa.