Final answer:
The purpose of Porter's five forces is to analyze the competitiveness and attractiveness of an industry. It assesses market power, product similarity, barriers to entry, and the basis of competition.
Step-by-step explanation:
The purpose of Porter's five forces is to analyze the competitiveness and attractiveness of an industry. It helps assess the market power of each firm in the industry, the similarity of products among firms, the barriers to entry for new firms, and the basis of competition, whether it's price, advertising, or product differences.
Market power: It examines how much control each firm has over the market and its ability to influence prices and other factors.
Product similarity: It measures the level of differentiation between firms' products and the extent to which consumers perceive them as substitutes.
Barriers to entry: It evaluates the challenges faced by new firms trying to enter the industry, such as high capital requirements or strong brand loyalty of existing customers.
Basis of competition: It analyzes the strategies employed by firms to gain a competitive advantage, whether it's through price, advertising, or unique product features.