MGMT 101 Chapter Notes - Chapter N/A: Switching Barriers, Customer Switching, Network Effect
Document Summary
Week 3 the five competitive forces that shape. Managers often define competition too narrowly (as if it occurred only among direct competitors) Underlying drivers of profitability are the same for all industries. Good analysis looks rigorously at structural underpinnings of profitability: understand appropriate time horizon, distinguish temporary/cyclical changes from structural changes. Goal is to understand underpinnings of competition and profitability: try to quantify. Forces are directly tied to income statements and balance sheets. New entrants pressure on prices, costs, and rate of investment. Threat of entry depends on height of entry barriers: entry barriers = advantages incumbents have relative to new entrants, supply-side economies of scale. Larger production volumes lower production costs. Creates cost disadvantage for newcomers: demand-side benefits of scale. Buyer"s willingness to pay increases when there are more buyers (buyers trust larger companies) Reduces price a newcomer can command: customer switching costs. Fixed costs that buyers face when they change suppliers.
