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Chapter 14: Problem 4

Michael Porter has argued that "the intensity of competition in an industry is neither a matter of coincidence nor bad luck. Rather, competition in an industry is rooted in its underlying economic structure." What does Porter mean by "economic structure"? What factors besides economic structure might be expected to determine the intensity of competition in an industry? Source: Michael Porter, Competitive Strategy: Techniques for Analyzing Industries and Competitors, New York: The Free Press, \(1980,\) p. 3 .

Short Answer

Expert verified
Porter's 'economic structure' refers to the composition and operation of an industry, including aspects such as number and size of competitors and market conditions. While this structure significantly influences competition intensity, other aspects like government regulations, technology, socio-cultural trends, customer loyalty, and business cycles can also play a role.

Step by step solution

01

Understanding Economic Structure

Economic structure refers to the way an industry or market is organized and operated, encompassing factors such as the number of competitors, their comparative sizes, and their influence over market conditions. This might include barriers to entry, the degree of product differentiation, and the presence of economies of scale.
02

Porter's view of economic structure

According to Porter, the intensity of competition in an industry is predominantly determined by its economic structure. That is, the nature and degree of competition are largely influenced by factors inherent to that industry. This could involve the level of supply and demand, the number of competing firms, and the market share distribution, among other things.
03

Factors beyond economic structure

While the economic structure is a significant determinant of competition intensity, other factors can also have an impact. These could include, but are not limited to, government regulations and policies, technological advancements, socio-cultural trends, the magnitude of customer loyalty, and the level of business cycles.

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