Competitive Forces

In his book Competitive Strategy: Techniques for Analyzing Industries and Competitors, Michael Porter discusses five forces that drive competition within every industry and every market. The forces that he identifies are: the threat of entry by new competition, the intense rivalry amongst existing competitors, the threat of substitute products, the bargaining power of suppliers, and the bargaining power buyers.

The first part of Porter’s model deals with the threat of new competition. According to Porter, the easier that it is for other companies to enter the market, the higher the level of competition will be amongst the existing companies within the industry. This threat of new competition drives companies to set a high level of service or value to customers that will be extremely difficult or costly for new entrants to duplicate. Porter identifies some key barriers that would discourage a company from attempting to enter into the market. Companies that already have footing...