Problem
1) Profit can be written in the following manner: Profit = (Price-Average Cost) x Quantity. Thinking about the five forces framework, describe how each of the five forces changes this equation. For example, think about entry. How does more (or less) entry affect each of the components of the profit equation?
2) How do economies of scale and economies of scope affect each of the five forces? That is, how does each force change with the addition of (or removal of) economies of scale and scope? For example, think about entry. How does more (or less) economies of scale affect entry?
3) How does the presence of (or lack of) excess capacity affect internal rivalry? How does it affect entry?
4) How does the presence of (or lack of) switching costs affect internal rivalry? How does it affect entry?
5) Think about internal rivalry. Explain how each of the following scenarios affects (or doesn't affect) internal rivalry:
a) There are high fixed costs in the production process.
b) There are only two competitors in the industry.
c) The products in the market are differentiated.
d) Excess capacity is low (or non-existent) in the market, relative to current demand.
6) Think about the market for specialist medical doctors, such as cardiac surgeons. They have very high salaries. Perform a five factors analysis of this market to understand why their salaries (and profits/rents) are so high.
7) How is coopetition different from competition, and what does it add to the 5 forces framework?