Porter’s Five Forces

1. Uncertain. Porter’s Five Forces is mainly for the analysis within the same industry, but not just among the firms that competing with each other, also including the other elements and recourse within the industry, such as the suppliers and new entry companies, buyers and potential substitutes etc.

1. Uncertain  The profit is determined by the price minus the cost. And the customer demand is relevant to the WTP. A high demand in the market may give the company some advantage to charge high price, but at the same time, the cost could be also really high for example, in this case, there might be many network companies and studios want to buy the right therefore the cost of buying the television right will be very high.

1. Uncertain If the diversion ratio is really high between A&B, the merger of A&B may lead to a price increase or, may not. The situation will further depend on how diversified of the whole market and how big market share that the merged A&B occupies. For example, if McDonald and Burger King mergers (their diversion ratio could be high within the fast food industry), their substitute market could be a broader food industry therefore there will be enough substitute products(such as Panda Express) that will prevent the merged McDonald & Burger King to charge high .

1. Uncertain  Usually, firms pioneering new technologies with patent enjoy the advantages as the first movers. However, this is not always the general rule: let’s use the “Lieberman & Montgomery” cased discussed in the class as an example: there could be free-rider effects, technological uncertainty(such as new technology revolution etc.), shifts in customer needs and incumbent inertia etc – these factors may all impact the “first-mover” advantages.

1. Uncertain There is some connection between ear of hold up and vertical integration, but the two are not mutual exclusively “cause - vs - result” parties. Vertical integrate may happen because of other reasons, except fear of holdup, such as technology need or reliable supply resource. At the same time, the fear of hold up could also get resolved by other solutions, such as the “drifting power station” mentioned in our class.

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