This document provides an overview of industry analysis and market definition. It discusses analyzing customers, competitors, and the industry as interdependent. It also covers different bases and levels of competition as well as methods for determining competitors and defining markets. Key factors include substitutes, direct vs indirect competitors, and constraints on price increases. Finally, it introduces Porter's Five Forces model for assessing industry attractiveness based on rivalry, threats, and bargaining power.

1. Industry Analysis/Mkt Definition
• Analysis of customers, competitors and
industry are interdependent.
• Require balance between identifying too
many and too few competitors.
• Many bases for competition.
• Different levels of competition.

2. Industry Analysis/ Mkt Definition
• Bases of Competition
1. Customer oriented (Who they are;
When they use it; Why they use it)
2. Marketing oriented (Theme/copy
strategy; Media; Distribution; Price)
3. Resource oriented (Raw materials;
Employees; Financial resources)
4. Geographic
• Levels of Competition- 1. Product form;
2. Product category; 3. Generic; 4. Budget

3. Industry Analysis/Mkt Definition
• Methods of determining competition:
1. Existing categories
2. Technical feasibility of substitution
3. Managerial judgement
Markets Products/Services
Same Different
Same A B
Different C D

4. Industry Analysis/Mkt Definition
• Methods for determining competition (contd.):
4. Customer behavior based
- Brand switching
- Interpurchase times
- Cross elasticity of demand
5. Customer judgement based
- Overall similarity
- Similarity of consideration sets
- Product deletion
- Substitution in use

5. Competitor Identification
• Identifying competitors by identifying
substitutes
• Substitutes are products whose cross-
price elasticities of demand are positive
• There is a distinction between direct and
indirect competitors
• Similar products in different geographic
markets may not be substitutes

6. Market Definition
• Market definition describes the market in
which a firm competes
• Two firms are in the same market if they
constrain each others ability to raise price
• Suppose all firms collectively set prices to
maximize combined profits. Would they
choose to raise prices by a least 5%?

7. Market definition
• If the own-price elasticity of a group of
firms collectively is small, then this group
of firms constitutes a well-defined market
• Antitrust agencies (Dept of Justice) looks
at the above

8. Market Structure and Competition
• Market structure refers to the number and
distribution of firms in a market
• Common measures are N-firm
concentration ratio and Herfindahl index
• The Herfindahl index of an industry
depends on the nature of competition in
the industry

9. A typology of competition
• Perfect competition:
- many sellers
- homogenous products
-well-informed consumers can
costlessly shop around

10. A typology of competition
• Monopoly:
-no competition for output
• Monopolistic competition:
-many sellers
-each sells a differentiated product
• Oligopoly:
-few sellers, so the actions of one firm
materially affects the others

11. A Tool for Assessing Industry
Attractiveness: Porter’s Five
Forces
Rivalry among
existing industry
firms
Threat of substitute
products
Bargaining
power
of buyers
Bargaining
power
of suppliers
Threat of new
entrants

12. Performing the 5-forces analysis
• Assess each force by asking “Is it
sufficiently strong to reduce/eliminate
industry profits?”
• Internal rivalry
-begin by defining market
-price competition drives down prices
-non price competition drives up costs
-industry prices do not fall by themselves, so
you ask “Who will reduce it and why?”