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A graphical representation of Porter's five forces. Porter's Five Forces Framework is a method of analysing the competitive environment of a business. It draws from industrial organization (IO) economics to derive five forces that determine the competitive intensity and, therefore, the attractiveness (or lack thereof) of an industry in terms of its profitability.
For example, the more people use a particular language, the more valuable that language becomes. Non-rivalry does not imply that the total production costs are low, but that the marginal production costs are zero. In reality, few goods are completely non-rival as rivalry can emerge at certain levels.
As an example, a clothesline and a clothes dryer machine have almost identical purpose The occasion of the product refers to when, where and how it is used. Products that are used in similar occasions will have a higher degree of substitutability. As an example, orange juice and coffee can be used for the same occasion (i.e. breakfast).
A rivalry in which competitors remain at odds over specific issues or outcomes, but otherwise maintain civil relations, can be called a friendly rivalry.Institutions such as universities often maintain friendly rivalries, with the idea that "[a] friendly rivalry encourages an institution to bring to the fore the very best it has to offer, knowing that if it is deficient, others will supersede ...
Like perfect competition, under monopolistic competition also, the companies can enter or exit freely. The companies will enter when the existing companies are making super-normal profits. With the entry of new companies, the supply would increase which would reduce the price and hence the existing companies will be left only with normal profits.
The entrance of new competitors is likely when: There are high profit margins in the industry; There is unmet demand (insufficient supply) in the industry; There are no major barriers to entry; There is future growth potential; Competitive rivalry is not intense; Gaining a competitive advantage over existing firms is feasible
Image source: The Motley Fool. Vici Properties (NYSE: VICI) Q4 2024 Earnings Call Feb 21, 2025, 10:00 a.m. ET. Contents: Prepared Remarks. Questions and Answers. Call Participants
As competition in an oligopoly can be greater when there are more competitors in an industry, it is theoretically harder to sustain cartels in an industry with a larger number of firms, as there will be less collusive profit for each firm. [69] Consequently, existing firms may have more incentive to deviate.