Industry AnalysisMkt Definition

1
Industry Analysis/Mkt Definition

• Analysis of customers, competitors and industry
  are interdependent.
• Require balance between identifying too many and
  too few competitors.
• Many bases for competition.
• Different levels of competition.

2
Industry Analysis/ Mkt Definition

• Bases of Competition
• 1. Customer oriented (Who they are When they
  use it Why they use it)
• 2. Marketing oriented (Theme/copy strategy
  Media Distribution Price)
• 3. Resource oriented (Raw materials
  Employees Financial resources)
• 4. Geographic
• Levels of Competition- 1. Product form 2.
  Product category 3. Generic 4. Budget

3
Industry Analysis/Mkt Definition

• Methods of determining competition
• 1. Existing categories
• 2. Technical feasibility of substitution
• 3. Managerial judgement

4
Industry Analysis/Mkt Definition

• Methods for determining competition (contd.)
• 4. Customer behavior based
• - Brand switching
• - Interpurchase times
• - Cross elasticity of demand
• 5. Customer judgement based
• - Overall similarity
• - Similarity of consideration sets
• - Product deletion
• - Substitution in use

5
Competitor Identification

• Identifying competitors by identifying
  substitutes
• Substitutes are products whose cross-price
  elasticities of demand are positive
• There is a distinction between direct and
  indirect competitors
• Similar products in different geographic markets
  may not be substitutes

6
Discussion question

• What do you think is the Antitrust approach to
  market definition?

7
Market Definition

• Market definition describes the market in which a
  firm competes
• Two firms are in the same market if they
  constrain each others ability to raise price
• Suppose all firms collectively set prices to
  maximize combined profits. Would they choose to
  raise prices by a least 5?

8
Market definition

• If the own-price elasticity of a group of firms
  collectively is small, then this group of firms
  constitutes a well-defined market
• Antitrust agencies (Dept of Justice) looks at the
  above

9
Market Structure and Competition

• Market structure refers to the number and
  distribution of firms in a market
• Common measures are N-firm concentration ratio
  and Herfindahl index
• The Herfindahl index of an industry depends on
  the nature of competition in the industry

10
A typology of competition

• Perfect competition
• - many sellers
• - homogenous products
• -well-informed consumers can costlessly
  shop around

11
A typology of competition

• Monopoly
• -no competition for output
• Monopolistic competition
• -many sellers
• -each sells a differentiated product
• Oligopoly
• -few sellers, so the actions of one
  firm materially affects the others

12
A Tool for Assessing Industry Attractiveness
Porters Five Forces
Threat of new entrants
Bargaining power of suppliers
Bargaining power of buyers
Rivalry among existing industry firms
Threat of substitute products