Module - Analysing the Competition

Types of Competition

Tell Me

Porter’s Five Forces framework

Michael Porter originally developed his Five Forces framework as a way of assessing how
attractive different industries were. The aim was to assess profit potential by assessing the
threats created by new entrants, buyers, substitutes and suppliers; and also to consider the
effect of rivalry between existing competitors.

The five competitive forces that influence the success or failure of a business are shown in
Figure 3.1

Figure 3.1 Porter’s Five Forces model

Porter focused on what he called ‘forces driving industry competition’. He suggested that his
framework would help companies to find ways in which their business can gain advantage over
its competitors.

The Porter's Five Forces model investigates the following:

The bargaining power of suppliers. Suppliers have strong bargaining power if, for
example, they are the only suppliers who can easily supply you with enough components
or materials.
The bargaining power of customers. Customers have strong power if there are a number
of competing suppliers. The customer can then choose the one which provides the goods
 at lowest prices, or delivers them more rapidly, etc.
The threat of new entrants. New entrants will have difficulty entering markets which need
a great deal of production experience or equipment, such as constructing ships or
computer memory. It is easier to be a new entrant, for example, as a franchisee of an
existing fast food chain.
The threat of substitute products and services. Substitutes are services or products that
offer a similar benefit to yours, but use a different process. Over recent decades, cars
have been a substitute for trains.
The rivalry among current competitors. Rivalry varies depending on many factors related
to the industry. For example, when cars were all made from steel, and there was not
enough steel to enable full production, rivalry between the steel companies was very low.

Some key points that you need to note are:

The aim is to assess how the business can be successful in the future.
It is used to analyse the current situation and predict future changes.
It is most effective where there are changes in the forces.
It shows that many of the forces are interdependent.
The business can often influence and disrupt the forces.

Involve Me

As the chief executive of a company manufacturing desktop PCs, what threats and powers
would you identify under Porter’s five categories?
Feedback
The key point for this activity is that desktop computer manufacturers are not just
competing with themselves. They are, either directly or indirectly, competing with products
such as eBook readers, mobile phones, laptops and even the producers of televisions
sets. It may also be that the market for desktop PCs will decline as the lifetime of the
equipment increases and companies replace them less frequently.

Some possible examples that you might have identified are:

Suppliers: If the market for desktop PCs is declining, then the power of suppliers may
fall.
Customers: If the size of the market is falling, then customers will gain power. They will
search for lower prices or bargain for discounts.
New entrants: If levels of innovation fall, then new companies may enter the market to
offer cut-price products.
Substitute products: There may also be ‘new entrants’ in related markets. Companies
may give their staff laptops rather than expecting them to work at a PC in a fixed
location.
Rivalry between existing competitors. During decades of rapid growth in the PC
 market, there was great rivalry between competitors as they tried to increase their
share of the market. This rivalry may fall if the market stabilises and competitors focus
on maintaining their market share.

Note that all of the above are based on a single assumption about the PC market. In
practice, the chief executive would need to carry out far more market research before
reaching firm conclusions about each of the five forces.

Show Me

For a description of Porter’s framework, see:

Porter’s Five Forces: Assessing the balance of power in a business

situation: http://www.mindtools.com/pages/article/newTMC_08.htm

Note that this website also contains a video describing the key points of the framework and a
useful chart of the five forces, listing some of the key factors that may affect each force.

Tell Me

Types of market
We now need to stand back from Porter’s model, and consider a whole industry in terms of
those five forces. How many competitors are there, and how do they compare with each other
in terms of power?

Using the terms used in Porter’s model, our discussion of the various types of market will start
by considering the number of existing firms, the barriers that may deter new entrants, and the
threat of substitutions.
Perfect competition
This is the most competitive market structure. The key characteristics are:

There are many buyers and sellers, so no single buyer or seller can dominate.
All of the goods being bought and sold are identical.
Everyone involved has full knowledge of all of the various prices and costs.
There is perfect mobility; customers can switch freely to other producers, and producers
can switch easily to use the resources to create other products.
There are no barriers to entering or leaving the market.

In such a perfect marketplace, the rules of supply and demand would operate perfectly.
Decisions would be based on the whole market, not on the power of a single buyer or seller.
No single seller could charge higher prices than any other; if they did, then buyers would simply
move to other sellers. As a result, every seller would charge the same prices.

Involve Me

Can you think of any markets that operate in this way, or are close approximations to it?
Feedback
The perfectly competitive market is purely theoretical, and does not appear to exist in any
practical case.

One possibility might be a large number of local farmers growing identical vegetables and
selling them at their farm gates. Even in this case, the buyers will have to consider their
travel costs – they cannot switch between different sellers without a certain change in their
costs.

In a perfect market, no individual organisation has power. It has to charge the same price
as its competitors.

Note also that there is no point in spending money on advertising, since every buyer
already knows that all goods have the same value. No single seller is likely to make more,
or less, profit than any other, except in the very short run if they suddenly reduce their
prices and capture a large share of the market for a short period.

Tell Me

Monopoly
A monopoly is the opposite of a perfect market. In a pure monopoly:

There is only one seller, who supplies the whole market.

There are no substitutes.
The barriers to entry are high enough to exclude any competitors.

In a monopoly, the company has absolute market power and can charge whatever it thinks
each segment of the market will pay. There is no need for advertising, as they are the only
seller. Profitability is high.

Involve Me

Describe an example of a monopoly market, or a close approximation to one.

Feedback
 One example might be a ferry company that transports cars to a small island. If the island
is small, the size of the market will act as a barrier to entry. The only possible substitute is
to use helicopters but that would be much more expensive. The ferry company thus
operates in something approaching a perfect monopoly.

Other examples you might have chosen include small airlines operating to remote, small
communities, or the only dentist in a remote, small town.

On a larger scale, you could have considered monopolies (or near monopolies) that only
exist for a relatively short time. Examples include:

Dyson’s revolutionary vacuum cleaner, until Hoover and other manufacturers

developed their own versions
Microsoft Windows, until it was replaced in some large-scale systems by Linux, and
some businesses started to use Apple computers.

Monopolies in practice
Where a monopoly (or near monopoly) exists, the general assumption is that

a) prices will be higher;

b) customers will have a smaller choice of goods; and

c) the company will have less need to innovate.

In fact, the situation is often more complicated. Considering each of those points in turn, you
could also argue that:

a) prices under a monopoly can be kept low by fully using the economies of scale;

b) choice may be greater if the company does not have to focus solely on the largest section
of the market; for example, under perfect competition conditions, radio stations would be
unlikely to offer programmes catering for minority tastes, such as discussion programmes, jazz,
or programmes focused at disabled people;

c) a company in a monopoly may innovate to gain higher profits in future; it may also have
greater resources to devote to innovation. (You could, perhaps, consider the new products that
Microsoft has developed over recent years.)
Oligopoly
An oligopoly is a position between a perfect market and a monopoly. It exists where a very
small number of companies dominate the market.

In many countries, a small number of car manufacturers and oil companies form oligopolies.
For example, petrol retailing in the UK was dominated by Shell, BP and Esso until the late
1990s. The soap powder industry provides a worldwide example, with almost total domination
by Unilever, and Proctor and Gamble.

As with monopolies, large oligopolies can be threatened by new competitors. In the UK, a
number of the large supermarket chains have entered both the petrol retailing and soap
powder markets. Because of their large size, they can reduce their costs, and offer discounts to
customers who have already visited their stores. They can also get large discounts from the
producers of soap powders and create home-brand items for sale at low prices.
Oligopolies in practice
Oligopolies are relatively common in practice. For example, consider the following examples
from different regions of the world:

Six movie studios receive 90% of US film revenues.

Four companies (Tesco, Sainsbury's, Asda and Morrisons) share 74.4% of the grocery
market.
Banking is dominated by ANZ, Westpac, NAB, and Commonwealth Bank. The Australian
government even has a Four Pillars policy, designed to ensure stability in the banking
sector.
The worldwide accountancy market is controlled by PriceWaterhouseCoopers, KPMG,
Deloitte Touche Tohmatsu, and Ernst & Young - commonly known as the Big Four.

In general, there is relatively little price competition, but there is often great competition in
terms of advertising spend, brand name recognition, and the use of gifts and special offers.
Perhaps the most common examples relate to the advertising by the large supermarket chains.
The fixed nature of prices in an oligopoly is generally a result of market forces.

Show Me

You can find a video explaining oligopoly in a little more detail, including its possible effect on
prices and competitors, at:

Oligopoly: https://www.youtube.com/watch?v=ElBF2D7IHAI

There have been examples of collusion between the members of an oligopoly to agree prices.
This practice, known as ‘price-fixing’, is generally illegal.

You can find information on two recent UK examples on the following websites:

Libor interest rate riggers 'should face prosecution': http://www.bbc.co.uk/news/business-

19748613

Gas prices: FSA examines whistleblower's claims of 'Libor-like' manipulation:

http://www.guardian.co.uk/business/2012/nov/12/libor-like-manipulation-gas-markets

Tell Me

Monopolistic competition
Although this term may seem to involve a contradiction, this approach is actually the aim of
many companies in today’s market place.

Think about the high-street clothing retailers. Many of them aim to be the monopoly provider
for their own market segment. For example, Burton focuses on supplying mid-price clothing for
young men, whereas East focuses on higher price items for middle-aged women. Contrasting
with those that aim to grow a large market share in a specific market segment, some
companies (such as Marks and Spencer) have tried to satisfy a wide range of markets.

In a monopolistic competitive market, each company will have little overall power, and prices
will be relatively fixed within each market segment. To clearly identify the market segments,
there will be heavy advertising. Profits may be high in the short term, but over longer periods
will be affected by the entry of competitors into particularly successful segments.

Show Me

For a more detailed description of monopolistic competition, including a demonstration of how it

may affect prices, see:

Monopolistic Competition: https://www.youtube.com/watch?v=Xlpo4F6MdbM

Involve Me

For this activity, think about an example of monopolistic competition that you have observed.
For example, you might think of the UK examples of clothing chains, or supermarkets, or the
airlines in your region (each of which is likely to be one of a small number offering particular
types of air travel).

Does monopolistic competition offer advantages or disadvantages for the consumer?

Feedback
In many situations, it is likely that you found the competition benefits consumers. For
example, each supermarket chain has to work on innovation and on minimising prices to
attract and retain its customers.

However, there can be problem. The strength of the competition may become so strong
that one or more of the companies will fail. As the number of competitors falls, it may be
that customers will be offered less choice, and that prices will stop falling.

Involve Me

How would you categorise the following companies or groups of companies?

a) Searle’s NutraSweet, an artificial sweetener consumed by some 250 million people

worldwide
b) Microprocessor manufacturers Intel and AMD

c) Package delivery companies FeDex, UPS and USPS

d) American TV networks ABC, NBC and CBS

e) The independent restaurants on your local main street

f) Dell’s international PC markets

g) Amazon.com
Feedback
a) Searle’s NutraSweet is a monopoly, since the competitors are very much smaller.

b) Microprocessor manufacturers Intel and AMD form an oligopoly (though with only two
competitors this is sometimes called a duopoly).

c) Package delivery companies FeDex, UPS and USPS are also an oligopoly.

d) American TV networks ABC, NBC and CBS form an oligopoly, though they are being
threatened by cable companies and also by mobile phones.

e) The independent restaurants on your local main street represent monopolistic

competition. Each restaurant offers something different and possesses an element of
uniqueness, but all are essentially competing for the same customers.

f) Dell’s international PC markets are an example of relatively pure competition.

g) Amazon.com is growing so rapidly that it is difficult to classify. Some book sellers fear
that it will completely dominate the market and become a monopoly.

Involve Me

Before going on to think about how the various environments might affect performance, use
the following table to create your own summary of the predicted results.

Predicted effects

Type of market Market power Effect on price Amount of Profitability

of each advertising
company

Perfect
competition

Monopoly
Oligopoly

Monopolistic
competition

Feedback
The theoretical responses are shown in the following table.

Predicted effects

Type of market Market power Effect on price Amount of Profitability

of each advertising
company

Perfect None One price None Normal

competition

Monopoly Total Some price None Very high

discrimination

Oligopoly High One price High Very high

Monopolistic Low Some price High Normal

competition differences

Tell Me

Structure – conduct – performance

So what effect will being in, say, an oligopoly have on my own company?

The structure of an industry will itself have a major influence on how each company conducts
itself, and this will in turn affect performance. The stages of that process are illustrated in
Figure 3.2.
Figure 3.2 Links between structure, conduct and performance

As just one example, think of a company operating in a highly competitive environment (a

Structural Factor). Possible affects (the Conduct) will include reducing prices and increasing
advertising to remain competitive. In turn, this would have affects on Performance factors,
perhaps reducing profitability and also reducing the amount that can be spent on technological
innovation.
Structure, conduct and performance in practice
In practice, the relationships between structure, conduct and performance tend to be confirmed
by figures on, for example, advertising spend. However, the figures also show that companies
must spend highly on advertising if they are trying to maintain monopolistic control of their
markets.

The main difficulty with applying this theory in practice is largely that the examples of the
various types of market are often imperfect. For example, there is probably no such thing as a
perfect competition market or a perfect monopoly.

Involve Me

Which of the market structures most closely applies to your own organisation and its industry?
(If none of them does (for example, if you work for a government department) consider an
industrial company that you know about.)
Analyse that industry and market in terms of the structure – conduct – performance model.
Feedback
The specific points you make, and the conclusions you reach, will depend on the particular
industry you describe. Do check, however, that you have considered each of the factors
listed in Figure 3.2:

Structural factors – amount of competition, existence of potential competition, costs,

demand and barriers to entry.
Conduct – pricing policy, amount of advertising, merger behaviour and product
differentiation.
Performance factors – profitability and technological innovation.

Note also that we said ‘most closely applies’; do not expect any of the structures to fit
exactly.

Finally, having analysed the current situation, the key is to assess whether your analysis
suggests any strengths, weaknesses, opportunities or threats that could be exploited (or
acted on) to create competitive advantage in the future.
Competition policy
Having seen the benefits and costs of each form of market for industries and consumers, we
now need to consider how governments might react to the various forms of market. The first
task is to make an assessment of the degree of competition that actually exists in any
particular market.

One useful measure is to calculate concentration ratios, which measure the proportion of
total market share controlled by a given number of firms. When there is a high concentration
ratio in an industry, economists tend to identify the industry as an oligopoly. For example, in
2012 there were around 170 telephone service suppliers in the UK. However, when you look at
the fixed-broadband providers, just four companies (BT, Virgin Media, TalkTalk and Sky)
control 85% of the market.

In certain industries, the figures show even greater concentration. For example, in the UK
sugar industry 100% of output came from five companies, while in the tobacco industry the
largest five companies create 99% of output. In contrast, certain industries may support many
companies: at the same period in the UK, there were eight executive recruitment companies,
each taking a significant share of the market.
Levels of competition and efficiency
Before considering ways in which governments can try to influence the market, we will review
the key ways in which competition can affect an industry’s level of efficiency, and the price for
consumers. To summarise two of the points we made earlier:

The smaller the number of companies, the larger they will be the economies of scale (and
thus the more likely that they will benefit from the economies of scale).
The larger the number of companies, the more competition there will be (and thus the
lower prices are likely to be).

Changes in concentration levels

In the years 1900 to 1950 in the UK, concentration in most markets increased. This occurred
mainly as a result of standardisation and the growth in the use of mass production techniques.
In the second half of the century, the number of companies stayed relatively constant.

However, recent decades have also seen an increase in entrepreneurial start-ups, and in
companies focusing on micro-segments of the market. During the same period in some
segmented markets, companies started to adopt Japanese approaches; linking a number of
relatively small firms. In these industries, there was actually a growth in the number of
companies. Linked factors here include:

Greater market segmentation, as consumers demand ever-wider ranges of products.

Developments in Information Technology; for example, using Computer Aided Design
(CAD) and Computer Aided Manufacturing (CAM) to develop and manufacture specific
products aimed at small market segments.
Economies of scope, with many car manufacturers ‘mixing and matching’ components so
that the consumer is able to choose from a wide range of options.
Just-In-Time production methods, which minimise the levels of stocks needed and so
reduce a small company’s costs.

In most other developed countries, the level of concentration has generally been lower than in
the UK but the trends have followed a similar pattern.
State ownership
A second trend that can be identified relates to changing views on state ownership. Around
1950, a number of governments in free-market economies decided that certain key industries
should be owned by the state (or nationalised). They considered that this would protect a
country’s ability to, for example, operate effective telephone systems, supply water or provide
effective rail transport systems. They also used nationalisation to support failing industries; for
example, creating British Steel.

However, governments in more recent decades have become concerned if levels of

competition have fallen, whether resulting from state ownership or monopolisation of a market
by a small number of companies. To prevent this problem, governments have reduced the
level of concentration by privatising state-owned businesses and allowing or introducing
varying degrees of competition. They have also prevented monopolisation through legislation,
trying to prevent one company from owning more than a certain percentage of any one
industry.
Privatisation
The term ‘privatisation’ is used to describe a number of rather different government actions.
These have included:

The sale of government-owned assets; including previously nationalised industries such

as British Steel, British Gas and the Brazilian telecommunications company, Telebras
Brazil.
Contracting out of services in the public sector; for example, cleaning hospitals or schools.
Using private capital to create public facilities, as shown by the private building of
motorway toll roads or the use of Public-Private-Initiatives (PPIs), where a mix of public
and private funding is used to build new schools and hospitals.
Deregulation; for example, where the state removes regulations controlling bus services
or postal services, making them open to a range of competitors.

Considerable privatisation occurred in UK, Portugal, Holland, France and other EU countries in
the early 1990s, in Eastern Europe since the collapse of communism, and more recently in
India.

Show Me

For a video on privatisation in the 2010s, see:

The Future of Privatisation: https://www.youtube.com/watch?v=pGlGHBYJd5A

Involve Me

One of the aims of privatisation is to increase the level of competition in the economy. For each
of the four actions listed above, try to identify examples that would:
Increase competition
Have little effect on, or even decrease, competition
Feedback
All four actions will usually create greater levels of competition.

The sale of government owned assets. The sale of British Gas, and the deregulation
that occurred with it, has resulted in the appearance of many competitors in the gas
market. Gas prices (when corrected for inflation) initially fell, though some of that fall
resulted from the availability of cheaper North Sea Gas. In recent years there have
been suggestions that the limited number of gas companies has created an oligopoly
which may not be acting in the consumers’ best interest.
Contracting out of services in the public sector. This has reduced costs in many
hospitals and schools, though there have been questions about the quality achieved.
Using private capital to create public facilities. The private building of motorway toll
roads, schools and hospitals has acted as competition to building by government
agencies. It is perhaps too soon to be certain whether the short-term savings for
government will compensate for the long-term costs.
Deregulation of postal services, and the resulting growth in courier services, created
greater competition and a reduction in prices for large users. Again, whether this will
create long-term benefits for the wider population is questionable: there are fears that it
is causing a decline in the service available from the Post Office.

On the other hand, privatisation can also result in a decline in the quality or availability of
services, and may increase costs.

The sale of government-owned assets. Privatisation of British Steel led to its eventual
purchase by the Dutch company, Corus, reducing the number of European steel
companies. Corus was itself then bought by the Indian conglomerate, Tata, providing
an example of a wider decline and rationalisation in the worldwide steel industry.
 Contracting out of services in the public sector. You’ve already seen that this may
result in a decline in the quality of cleaning in hospitals and schools. In rural areas, with
small populations, it is relatively easy for such services to become monopolies.
Using private capital to create public facilities. The government’s insistence on private
finance involvement in the London Underground expansion, and their difficulty in
finding a suitable partner, delayed the expansion. See also the example of the failure
of Metronet in the following Involve me activity.
Deregulation of local bus services in rural areas can lead to a reduction in the level of
service. Where regulated companies had to provide services on social grounds, de-
regulated companies often only operate on a profit basis, so may choose only to
operate profitable services.

Show Me

Governments have trouble finding the correct balance between expenditure, risks and the level
of public and private involvement in public-private projects. For an example,

Collapse of tube contractor Metronet could cost taxpayer

£410m: http://www.guardian.co.uk/business/2009/jun/05/metronet-london-underground-
ppp

Legislation on competition issues

Legislation to prevent monopolies (‘antitrust laws’) in the US dates back to the Sherman Act of
1890. Similar legislation in the UK includes:

The Monopolies and Restrictive Practices Act (1948) and the Monopolies and Mergers
Act (1965) – which established the Monopolies and Mergers Commission.
The Fair Trading Act (1973) and the Competition Act (1980) – which closed the
Monopolies and Mergers Commission and established the Competition Commission.

The main effects of those laws were to:

Prevent companies from agreeing prices between themselves, where this would be
against the public interest
Lead to investigation by the Competition Commission where at least 25% of a market is
controlled by a single buyer or seller (or by two related companies)
Lead to investigation where a merger involves gross worldwide assets of over £70 million,
or a market share of over 25%

The later Competition Act (2000) then brought UK law into line with EU law. For example,
where British legislation had referred to “the public interest”, the EU legislation refers to “abuse
of a dominant position” and factors that could “prevent, restrict or distort” competition.
Involve Me

We have outlined the legislation in the UK. Now consider the situation in a country that you live
in, or that your business operates in or exports to.
What legislation exists?
How does that relate to your own industry? For example, are the rules more, or less, strict than
those in the UK?
Feedback
If you chose another country in the EU, the legislation is likely to be very similar, being
based on the Treaty of Rome (1957) and the Treaty of Amsterdam (1999).

In relation to the US, China and certain other countries, don’t forget that you will need to
search for information on anti-trust legislation.

Show Me

You can find four historically important examples of the application of anti-trust laws at:

Antitrust law examples: http://www.antitrustlaws.org/Antitrust-Law-Examples.html

To see antitrust laws have been adopted in China, study the following article about a Coca-
Cola bid to buy a Chinese company:

Anti-trust law treats 'all firms equally' : http://www.chinadaily.com.cn/china/2010-

08/13/content_11147315.htm

For a current example, reporting how US legislators are considering prosecuting Google, see:

Google antitrust suit may have similar impact to Microsoft case in the
1990s: http://www.guardian.co.uk/technology/2012/oct/15/google-antitrust-microsoft-case

Competitors in other countries

As you have already seen, Michael Porter identified five forces that are likely to act on a
business in a particular industry. However, he also looked at the various factors that might
create benefits for businesses or industries operating in particular countries. He called these
the four determinants of national competitive advantage:

Factor conditions (typically land, labour and capital). A country that is particularly strong in
certain factor conditions will successfully export goods (products or services) linked to
them. As an example, a country in which labour costs are low will tend to export labour-
intensive goods.
Demand conditions. A nation’s competitive advantage is increased if there is strong local
demand for the goods. Denmark has a long history of care for the environment, so it is not
surprising that Danish companies are successful exporters of environmental products,
such as water-processing equipment.
Related and supporting industries. To be competitive, a country needs to have a network
of linked industries. Italian shoe producers benefit from close links with their country’s
 leather manufacturers.
Firm strategy, structure and rivalry. The strategies adopted by business need to fit with
the national culture and approach to business. Compare Germany (with many large
companies) with Italy (in which there are far more small or medium-sized companies). Or
compare Switzerland (with a focus on finance or pharmaceuticals) and Israel (with a
strong focus on defence and agriculture).

The fourth of those determinants is particularly important for this module. Think about the
seven regional telephone companies that originally existed in the US. This market became
fiercely competitive as the businesses tried to expand. Out of this competitive environment,
AT&T grew and has since become a major multinational company.

This fourth determinant also explains many government reactions to monopolistic market
conditions. Governments will try to create significant competition in their own country, believing
that the more successful companies will then expand into international markets. They do not
want markets to be dominated by a small number of companies, especially if those companies
are MNEs that are based outside the country.

Involve Me

Select three countries that are particularly successful in a specific industry. Try to ensure that
at least of the examples relate to your own country or another you know well.

To what extent do Porter’s determinants explain their success?

Feedback
As an example of how you could approach this activity, we considered Enright and Tenti’s
analysis of the Italian tile industry.

Tiles have been made near Bologna in Northern Italy for 700 years. After the 1939-45 War,
Italy began to rebuild and there was rapid growth in the industry. Suitable raw materials
and equipment had to be imported at first, but local workers soon developed a local
industry to supply equipment. The national ceramic tile industry association gave a great
deal of support.

Once the local tile manufacturers had re-stocked their tile factories, the equipment
manufacturers started to export their machinery. The tile manufacturers competed strongly
between each other, aiming for competitive advantage through more efficient production
systems. They eventually found that they also could not grow within the existing Italian
market and so began to export their tiles.

By 1990, the Italian ceramic tile industry accounted for 30% of the world’s production, and
60% of the world export market. Italy now benefits from a trade surplus of over $1 billion
from the industry.

In terms of Porter’s determinants, you can identify a number of factors relevant to this
region:

Factor conditions. Growth occurred when there was plenty of available labour and
capital for rebuilding the economy.
 Demand conditions. There is strong local demand for the goods.
Related and supporting industries. There is a network of linked industries, in this case,
primarily the equipment manufacturers.
Firm strategy, structure and rivalry. The industry is based on the small or medium-sized
companies that are common in Italy.

Show Me More

You can find a more detailed summary of Porter’s ideas in:

Determinants of National Competitive Advantage: http://www.mbaboost.com/content/209/

There is also a discussion of the model, written 20 years after Porter’s original, on:

Michael Porter’s Competitive Advantage

revisited: http://www.quickmba.com/strategy/competitive-advantage/

This has a particularly important summary of what governments can do to try to make their own
country competitive.

Show Me

You can view a video explaining monopolies in a little more detail, including their possible
effect on prices at:

Monopoly: https://www.youtube.com/watch?v=7UWgKZsKZOc