Final answer:
Porter's Competitive Forces impact competition by considering the risk of entry, bargaining power of suppliers and buyers, threat of substitutes, power of complement providers, and rivalry among established firms in the industry.
Step-by-step explanation:
Risk of entry: This force refers to how difficult it is for new firms to enter the industry. High barriers to entry make it challenging for new competitors to establish themselves in the market. For example, the automotive industry has high barriers to entry due to the significant capital investment required to build manufacturing facilities.
Bargaining power of suppliers: Suppliers can have a significant impact on competition if they have strong bargaining power. A supplier with limited alternatives or unique resources can demand higher prices or favorable terms, affecting the competitiveness of firms. For instance, the diamond industry is dominated by a few suppliers, giving them significant bargaining power.
Bargaining power of buyers: Buyers' power refers to their ability to negotiate better deals or influence prices. If buyers have many alternatives or can easily switch between suppliers, it weakens the position of firms. Online retail is an example where buyers have more power due to the availability of numerous options and price transparency.
Threat of substitutes: Substitutes are products or services that can fulfill a similar need to what an industry offers. The existence of close substitutes puts pressure on firms to differentiate themselves and remain competitive. An example is the soft drink industry, where consumers have alternatives like water, tea, and coffee.
Power of complement providers: Complement providers are businesses that offer products or services that enhance the value of an industry's offerings. The power of complement providers impacts the competitiveness of firms. For example, smartphone manufacturers rely on app developers to create apps that enhance the functionality of their devices.
Rivalry among established firms in the industry: The intensity of competition among existing firms in the industry affects their strategies and profitability. High rivalry leads to price competition, aggressive marketing, and innovation. The airline industry is known for its intense rivalry among established firms.