Porter's Five Forces

Overview

Recall questions on Porter's Five Forces, the threat of new entrants and barriers to entry, supplier and buyer bargaining power, the threat of substitutes, what intensifies competitive rivalry, using the model to improve a position, its limitations, and why airline profits are low.

What you need to know

Answer each one before you reveal it.

Questions from this subtopic

Each one with the model answer underneath.

1. 1

   What is the purpose of Porter's Five Forces model?

   Model answer

   It analyses the competitive structure of an industry in order to judge how attractive that industry is, meaning how much profit a business operating in it can expect to earn.

2. 2

   Name the five forces in Porter's model.

   Model answer

   The threat of new entrants, the bargaining power of suppliers, the bargaining power of buyers, the threat of substitutes and the intensity of competitive rivalry.

3. 3

   What determines the threat of new entrants to an industry?

   Model answer

   The height of the barriers to entry, such as the capital required, economies of scale, brand loyalty, patents, regulation and access to distribution.

4. 4

   How do high capital requirements weaken the threat of new entrants?

   Model answer

   Few potential rivals can raise the sums needed, so existing firms are protected and can sustain higher prices and profits.

5. 5

   When is the bargaining power of suppliers high?

   Model answer

   When there are few suppliers, the input is differentiated or essential, switching costs are high, or the supplier could integrate forwards into the industry itself.

6. 6

   When is the bargaining power of buyers high?

   Model answer

   When buyers are few and large, the product is undifferentiated, switching costs are low, and buyers can easily compare prices or produce the item themselves.

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