BUSI 1600 Lecture Notes - Lecture 13: Profit Margin, Switching Barriers
29 Mar 2017
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Document Summary
The threat of retaliation can be an effective deterrent to entry in an industry. Large, established firms are likely to retaliate when: they have a reputation and history of retaliation, the attack is at their core business. Firms are likely to retaliate when the product being threatened represents the majority of their sale volume: the industry is characterized by slow growth. Retaliation often takes the form of price-cutting or legal challenges. Price cutting is especially prevalent where the product has the characteristics of a commodity. When buyer power is high a firm may be forced to lower its prices or increase product quality resulting in a lower profit margin. When supplier power is high they should be in a better position to charge you higher prices or decrease their product quality. Doesn"t refer to offerings of direct competitors. Represents instead the threat of a product being replaced by an indirect competitor.
