Explanation : Industry competition is less intense and firm profitability is greater when there
is (1) less rivalry among existing industry firms. (2) less bargaining power of
customers. (3) less bargaining power of suppliers.
Explanation : The economic profit (which is computed as the spread between return on
capital and the cost of capital) tends to be larger in industries with differentiated
products, greater pricing power, and high switching costs to consumers. Firms
in Industry 2 have these features, whereas firms in Industry 1 have the exact
Explanation : The factor that most influences customer purchase decisions is likely to also be
the focus of competitive rivalry in the industry. In general, industries where
price is a large factor in customer purchase decisions tend to be more
competitive than industries in which customers value other attributes more
Explanation : Low barriers to entry increase competition as they allow new entrants. Unused
capacity results in intense price competition. Low concentration refers to a
fragmented market which increases competition.