![]() In reality, however, industries possess characteristics that protect the high profit levels of firms in the market and inhibit additional rivals from entering the market. In theory, any firm should be able to enter and exit a market, and if free entry and exit exists, then profits always should be nominal. It is not only incumbent rivals that pose a threat to firms in an industry the possibility that new firms may enter the industry also affects competition. How easy or difficult is it for new entrants to start competing? These forces determine industry profitability because they influence the prices, costs and required investment of firms in an industry. ![]() Porter identifies five forces that dictate the rules of competition in each industry. ![]() A business has to understand the dynamics of its industries and markets in order to compete effectively in the marketplace. The article, The Five Competitive Forces That Shape Strategy, is written by renowned Harvard business expert, Professor Michael E. ![]()
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