Chapter 4 – Further topics in industry and competitive analysis. This chapter presents the following content: Extending 5-forces analysis, game theory, competitor analysis, segmentation, strategic groups. | Further Further Topics Topics in in Industry Industry and and Competitive Competitive Analysis Analysis OUTLINE Extending 5-forces analysis o Does industry matter o Complements o Dynamic competition Game Theory Competitor Analysis Segmentation Strategic Groups Does Does Industry Industry Matter Matter Percentage of variance in firms return on assets explained by Industry Firm-specific Unexplained effects effects variance Schmalensee 19.6 0.6 80.4 1985 Rumelt 1991 4.0 44.2 44.8 McGahan amp 18.7 31.7 48.4 Porter 1997 Hawawini et al 8.1 35.8 52.0 2003 The The Value Value Net Net CUSTOMERS COMPETITORS COMPANY COMPLEMENTORS SUPPLIERS Five Five Forces Forces or or Six Six Introducing Introducing Complements Complements The suppliers of complements create value for the industry SUPPLIERS and can exercise bargaining power Bargaining power of suppliers INDUSTRY COMPETITORS COMPLEMENTS POTENTIAL Threat of ENTRANTS Threat of new entrants SUBSTITUTES Rivalry among existing firms substitutes Bargaining power of buyers BUYERS Dynamic Dynamic Competition Competition Porter framework assumes a industry structure drives competitive behavior b Industry structure is fairly stable. But competition also changes industry structure Schumpeterian Competition A perennial gale of creative destruction where firm strategies continually transforms industry structure innovation overthrows established market leaders Hypercompetition intense and rapid competitive moves .creating disequilibrium through continuously creating new competitive advantages and destroying obsolescing or neutralizing opponents competitive advantages Implication Under dynamic competition 5-forces framework is less useful Competitive behavior and industry structure jointly determined by underlying conditions of technology demand amp costs The The Contribution Contribution of of Game Game Theory Theory to to Competitive Competitive Analysis Analysis Main value 1. Framing strategic decisions as interactions between .