Question

According to Porter, the nature of the interaction between potential industry entrants, buyers, substitute products, suppliers, and rival firms determines:

A) whether or not the government will launch an antitrust investigation.
B) the industry's profit potential in terms of long-run return on invested capital.
C) whether a country can generate a balance of payments surplus.
D) whether a country can create a comparative advantage in the production of differentiated products.
E) whether a country can generate income by innovation.

Answer 1

The interaction between industry players as outlined by Porter affects the industry's long-run profit potential. Key lessons from the theory of the firm guide government intervention to maintain competition benefits while managing growth through mergers. Antitrust policies play a significant role in regulating these dynamics.

Step-by-step explanation:

According to Porter, the nature of the interaction between potential industry entrants, buyers, substitute products, suppliers, and rival firms determines the industry's profit potential in terms of long-run return on invested capital. The theory of the firm teaches us three important lessons about competition, scale, and market realities which influence how government policymakers balance the benefits of large-scale production with the need to maintain competition. When businesses grow significantly, especially through mergers, there is a potential loss of competition which can impact the industry's dynamics and policies related to antitrust regulation must consider these factors.