The Porter’s five forces are directly linked to the microeconomics that affects the firms in any economy. These forces focus on the vertical and horizontal competition. A change in either of the forces in the industry requires a firm to make changes in its operations otherwise; the competitors will be at a competitive advantage (Porter, 2008, p 86). According to Chapman (2004) the Porter’s five forces are….
- Threat of substitute goods
- Threat of new competitors entering into the industry
- Level of competition among the rivals
- Bargaining power of the suppliers
- Customers bargaining power
Threat of substitute goods
When there are few substitutes, the firms set high prices for their products leading to unfair competitions that may result to monopolistic competition requiring the government to intervene. When the clients have, a number of substitutes from which they can chose from, they determine their supplier depending with the quality and price differentiation.
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