An important question in this regard is of course to understand
which factors drive competition among established firms.
We will go through two essential factors driving competition now.
First of all, a key factor driving competition is the concentration of firms.
In basic terms, the more firms there are in a given industry,
the more pressure is being put on the prices, and less profit is generated.
In contrast, in an industry which is dominated by very few firms,
in other words, monopolistic industries such as school and the Internet search
industry, the firms have much more autonomy in setting the prices themselves,
and can therefore appropriate a much higher degree of value and profit.
Therefore, the higher the concentration of firms in an industry,
the more likely it is that competition is tough and industry profitability lower.
Second of all, another important factor driving rivalry between
established competitors is the diversity of competitors and
the products that they sell.
So, if all the firms in an industry offer a product which is more or
less identical, then it becomes very difficult to differentiate yourself, and
therefore more pressure is put on the prices.
As a result, industry profitability goes down.
In contrast, if you have an industry where differentiation is possible, again,
think about Apple and the Macbook and the personal computer industry,
then it's definitely possible to appropriate a high degree of value.
And what you will see is that industry becomes more profitable.
So, while a number of factors may drive competition besides the one that we've
talked about, it is, in all circumstances, highly important to consider
the level of competition and rivalry among established firms when determining
the attractiveness of your industry, or the industry that you wanna study.