[Porter's Five Forces analysis of market structure
The competitive structure of an industry can be analysed using Porter's five forces.
This model attempts to analyse the attractiveness of an industry by considering five forces within a market.
According to Porter (1980) the likelihood of firms making profits in a given industry depends on five factors:
1. The likelihood ...view middle of the document...
The likelihood of entering a market would be lower if:
the entry costs are high e.g. if heavy investment is required in marketing or equipment
there are major advantages to firms that have been operating in the industry already in terms of their experience and understanding of how the market works (this is known as the "learning effect")
government policy prevents entry or makes it more difficult; for example, protectionist measures may mean a tax is placed on foreign products or there is a limit to the number of overseas goods that can be sold. This would make it difficult for a foreign firm to enter a market
the existing brands have a high level of loyalty
the existing firms may react aggressively to any new entrant e.g. with a price war
the existing firms have control of the supplies .e.g. entering the diamond industry might be difficult because the majority of known sources of diamonds are controlled by companies such as De Beers.