Problems and Applications 5.5 Michael Porter has argued that \"the intensity of

Question

Problems and Applications 5.5 Michael Porter has argued that "the intensity of competi- tion in an industry is neither a matter of coincidence nor bad luck. Rather, competition in an industry is rooted in its underlying economic structure." What does Por- ter mean by "economic structure"? What factors besides economic structure might be expected to determine the intensity of competition in an industry? Source: Michael Porter, Competitive Strategy: Techniques for Analyzing Industries and Competitors, New York: The Free Press, 1980, p. 3.

Explanation / Answer

Economic structure is a term that describes the changing balance of output, trade, incomes and employment drawn from different economic sectors – ranging from primary (farming, fishing, mining etc) to secondary (manufacturing and construction industries) to tertiary and quaternary sectors (tourism, banking, software industries).

Factors responsible might be:

1. Threat of new entrants.

2. Threat of substitutes.

3. Bargaining power of customers.

4. Bargaining power of suppliers.

5. Industry Rivalry.

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