Moreover, how can we differentiate between porter's competitive strategy of differentiation & cost against his 5 forces model?
Hi Shafig,
Attached articles will be of great help.
Best of Luck
John Parker
Hi Shafig,
Attached articles will be of great help.
Best of Luck
John Parker
I was interested in these topics, some decades ago. My conculsion was it dépends a lot on the sector you are interested in.
The five forces in reality were derived from a series of regression analyses. You may for example construct a number of economic models where intensity of competition (i.e. number of competitors) is regressed against the firm's returns (i.e. RoIC).
In my forthcoming book - "Energy investments: An adaptive approach to profiting from uncertainties", I used Grenadier's option premium where he posited that firms would commit to expand when the value of payoffs exceed the option premium. Farther, he suggested that under monopoly (i.e. no competition), the monopolist would delay expansion until the option premium is twice that under a competitive market. You can use the logic of Grenadier to complement Porter's five forces to make your analysis more dynamic.
I would offer the following explanations:
1. In the absence of competition, the risks of pre-emption (hence, potential loss of opportunity) is minimal. Without this threat, a monopolist would delay until the market supply tightens sufficiently as to raise prices. Vice versa, under competitive markets, firms may expand sooner even if the option premium value is lower.
This helps answer the question on intensity of competition and the likely actions of rival firms.
2. When products are fungible, the cheaper supplies would erode the payoffs of the incumbents. You can use the binomial tree analysis of Cox-Ross-Rubinstein to analyse the effects of price erosion on payoffs.
This helps to answer the question on substitution, its impact on prices and volumes. More importantly, doing nothing may pose the higher risks given that inaction may result in erosion of value because of lower prices.
These are a number of the ways where you could "quantify" the impact on the firm's value under different competitive conditions.
Thank you so much everyone for detailed answers. I was away because of my father death, that is why acknowledgement is late. i would like to know hot to access 'Win-win-win papakonstantinidis model' ?
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