threat of new entrants in supermarket industry analysis

Falling prices, or the expectation that future prices will fall, deters rivals from entering a market.

When profits decrease, we would expect some firms to exit the market thus restoring a market equilibrium. For example, when industry profits increase, we would expect additional firms to enter the market to take advantage of the high profit levels, over time driving down profits for all firms in the industry. These are barriers to entry.īarriers to entry are more than the normal equilibrium adjustments that markets typically make. In reality, however, industries possess characteristics that protect the high profit levels of firms in the market and inhibit additional rivals from entering the market. In theory, any firm should be able to enter and exit a market, and if free entry and exit exists, then profits always should be nominal. It is not only incumbent rivals that pose a threat to firms in an industry the possibility that new firms may enter the industry also affects competition. How easy or difficult is it for new entrants to start competing? These forces determine industry profitability because they influence the prices, costs and required investment of firms in an industry.

Porter identifies five forces that dictate the rules of competition in each industry. A business has to understand the dynamics of its industries and markets in order to compete effectively in the marketplace. The article, The Five Competitive Forces That Shape Strategy, is written by renowned Harvard business expert, Professor Michael E.

Threat of new entrants in supermarket industry analysis