These costs must be covered, even if it means slashing prices in order to do so.įirms must stay and fight rather than leaving the industry gracefully. This forces firms to compete based on price rather than based on the uniqueness of their offerings. No one firm rules the industry, and cutthroat moves are likely as firms jockey for position.Ī shortage of new customers leads firms to steal each other’s customers.Ĭompetitors are not differentiated from each other. Rivalry among existing competitors tends to be high to the extent that… Competitors are numerous or are roughly equal in size and power. A number of characteristics that affect the intensity of the rivalry among competitors are illustrated below.
High levels of rivalry tend to reduce the profit potential of an industry. Luckily for automakers competing in the US market, Americans are notoriously reluctant to embrace these substitutes. SUBSTITUTES for the auto industry’s products include bicycles and mass transit.
#THE THREAT OF NEW ENTRANTS IN AN INDUSTRY IS HIGH WHEN DRIVERS#
Automakers also have to pay careful attention to end users, of course, such as individual drivers and rental car agencies. INDUSTRY COMPETITORS in the auto industry include firms such as Ford, Chrysler, and GM.īUYERS are those firms that buy directly from the industry such as automobile dealerships.
SUPPLIERS to the auto industry include firms such as Lear Corporation who produces auto interior systems. For example, Tesla Motors’ production of electric vehicles poses a threat to displace the traditional powers in the auto industry, and Chinese auto makers are rumored to be eyeing the US market. POTENTIAL ENTRANTS are firms that are not currently considered viable competitors in the industry but that may become viable competitors in the future. There are five key forces that determine the profitability of a particular industry. Understanding the dynamics that shape how much profit potential exists within an industry is key to knowing how likely a particular firm is to succeed within the industry.