3. Competition by degree of intensity

Intensity of competition - the nature and degree of opposition of competitors

same industry or market. The competitive situation is influenced by measures of state regulation of the industry - import restrictions, export bans, etc., which can both increase and decrease the attractiveness of the industry. For the degree of competition intensity, the Michael Porter model is usually used. It describes the functioning of the competitive environment within five main competitive forces:

1. The threat of new companies entering the market - add new production capacities to the industry and thereby reduce the market shares of existing competitors;

2. Bargaining power of suppliers affects the prices and quality of supplied products and services, which affects the profitability of the industry. Conditions under which the bargaining power of suppliers is high:

a) dominance of several suppliers;

b) a greater concentration in the industry of suppliers than in the industry of producers;

c) unavailability of substitute goods;

d) the insignificance of the manufacturer for suppliers;

e) the importance of the supplier's products to the manufacturer;

f) high differentiation of suppliers;

g) high costs of the manufacturer to change the supplier;

h) the supplier's ability to directly integrate with the manufacturer.

3. Bargaining power of buyers expressed in their ability to lower prices in an industry by reducing the quantity of goods they buy, or to demand a better quality product for the same price. Factors leading to greater bargaining power of buyers:

a) greater concentration than in the industry of the manufacturer;

b) large volumes of purchases;

c) undifferentiated or standard goods, services of the manufacturer;

d) the threat of backward integration of the buyer with the manufacturer;

e) openness of information on the composition of the producer's costs;

f) high price elasticity of demand in the industry;

4. Threat of substitute products. The availability of substitutes sets an upper limit on the price of a product in an industry. When the prices of existing goods rise above this limit, buyers may switch to substitute goods.

5. Competition between existing companies in the industry is the core of Porter's model. The intensity of competition between firms will be high if there are: a large number of firms in the industry, a small degree of their differentiation, a low industry growth rate, high fixed costs, for strategic or emotional reasons.

The intensity of competition also depends on the type of interaction between competitors and the speed of processes occurring in the industry.

Author: Ilyina V.N.

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