he basis of economics, their profits would amount to zero; therefore, they instead strive for a competitive advantage over their rivals (ôPorterÆs Five Forcesö). The intensity of the rivalry can vary from low to high, prompting a range of appropriate competitive moves such as price changes, improvement of product differentiation, vertical distribution channel integration, or relationships with suppliers (ôPorterÆs Five Forcesö). What influences the intensity of the rivalry is industry factors such as the number of firms competing, slow market growth, high fixed costs, high storage costs, low switching costs, low levels of product differentiation, high exit barriers, a diversity of rivals, or industry shakeout (ôPorterÆs Five Forcesö).
An important concept in PorterÆs model is what he terms ôthreat of substitutesö (ôPorterÆs Five Forcesö). This refers to the affect on a productÆs demand when the price change of a substitute product occurs (ôPorterÆs Five Forcesö). Substitute products also affect a productÆs ôprice elasticity,ö since the more substitute products become available, the more alternatives customers have (ôPorterÆs Five Forcesö). If one company brings out a product that sells phenomenally and a second product brings out a substitute product that is basically as good, the first company has no room to raise prices on its product; consumers will merely drop its product and begin buying the substitute (ôPorterÆs Five Forcesö).
Another element of PorterÆs model is buyer powerùôthe impact that customers have on a producing industryö (ôPorterÆs Five Forcesö). When buyer power is strong, the buyer can set the price, resulting in a ômonopsony,ö a market where there are many suppliers and one buyer (ôPorterÆs Five Forcesö). Although true monopsonies occur rather infrequently, there are lesser degrees of asymmetry between a producing industry and buyers that can produce some level ...