chapter 2

A situation where firms compete within an industry for market share and profits

Industry Competition

A group of firms producing similar goods or services

Industry

A market structure rarely observed with many firms and no control over price

Perfect Competition

An economic model where industry structure determines firm performance

Industrial Organization (IO) Model

A model showing that structure influences conduct and performance

Structure-Conduct-Performance (SCP) Model

A framework analyzing competitive forces in an industry developed by Michael Porter

Five Forces Framework

Competition among firms in the same industry affecting profitability

Rivalry Among Competitors

The risk that new firms enter the market and increase competition

Threat of New Entrants

The ability of suppliers to influence prices and terms of supply

Bargaining Power of Suppliers

The ability of buyers to influence prices and demand

Bargaining Power of Buyers

The risk of alternative products replacing existing offerings

Threat of Substitutes

Stronger competitive forces reduce a firm’s ability to earn high profits

Five Forces Impact on Profitability

A strategy focused on achieving low cost and offering low prices

Cost Leadership Strategy

A strategy focused on offering unique and valuable products

Differentiation Strategy

A strategy focused on serving a specific niche or segment

Focus Strategy

A high-volume, low-margin approach targeting mass markets

Cost Leadership Model

A low-volume, high-margin approach targeting premium customers

Differentiation Model

Serving a narrow segment with specialized knowledge or offerings

Focus Model

Producing similar products with little differentiation for mass customers

Low Differentiation Strategy

Offering unique attributes such as quality or prestige

Product Differentiation

The difficulty of maintaining uniqueness as competitors imitate

Imitation of Differentiation

Choosing between cost advantage or differentiation advantage

Strategic Choice

A firm lacking a clear strategy between cost and differentiation

Stuck in the Middle

Performing different activities than competitors to gain advantage

Strategic Positioning

Debates about industry boundaries and competition perspectives

Strategy Debates

The decision between performing activities internally or outsourcing

Integrating vs Outsourcing

Comparing industry effects versus firm and institutional effects on performance

Industry vs Firm Performance Debate

The idea that industries differ in profitability potential

Industry Profitability Differences

A structured approach to analyzing industry and competitors

Industry-Based View oai_citation:0‡IB+356+2026+-+5+-+Slides+Feb+5.pdf