MGT437H5 Lecture Notes - Lecture 3: Haute Couture, Marginal Cost, Fixed Cost
Document Summary
In this chapter the authors of the book focus on michael porter"s five forces analysis which are internal rivalry, entry, substitute and complementary products, supplier power and buyer power. Porter"s main aim was to classify economic factors into 5 major forces that encompass market competition. Firstly, internal rivalry among firms can be based on price and non-price dimensions. When firms engage in non-price competition such as couture fashion, where competition is based on style and image, their fixed cost and marginal cost go up but they also enjoy profits over long term. On the other hand, when firms engage in price competition it is likely to erode industry profits, in part because it is difficult to reduce costs to maintain price cost margins. Secondly, entry of new firms in the industry create barriers which can be both exogenous and endogenous.
