Industry structure determines company profitability from "summary" of Competitive Strategy by Michael E. Porter
The structure of an industry is a powerful driver of a company's profitability. Different industries offer different levels of profit potential, and this potential is largely determined by the industry's underlying structure. In some industries, companies compete in a highly fragmented market, with numerous small players vying for market share. This fragmentation often leads to intense competition, as companies strive to differentiate themselves from their rivals. In such industries, profit margins are typically low, as companies are forced to cut prices in order to attract customers. On the other hand, some industries are dominated by a small number of large companies. These industries tend to be more profitable, as the dominant companies are able to exercise significant market power. They can set prices at a level that maximizes their profits, without fear of losing customers to competitors. In addition, dominant companies often benefit from economies of scale, which allow them to produce goods at a lower cost than t...
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