Topic: the market structure

Individual students will produce an 8 to 10-page term paper that applies industry-level analysis
to the organization in which the student works; or an organization with which the student has
good contacts who are willing to provide information.* The paper provides an important
opportunity to apply the economic concepts and analytical tools (covered in class) to an
organization. Moreover, it provides an excellent opportunity to hone your writing skills. Most
employers rank written and oral communications skills as being the most important skill they
look for when hiring a business graduate.
The paper should be free of any spelling or grammar errors. It should contain a title page,
executive summary, introduction, conclusion, references, and an appendix. The body of the
paper must cover the analysis and information described below. The paper format is doublespaced,
12-point, Times New Roman font, with one-inch margins. The (8 to 10) page count does
not include the title page, executive summary, references, or appendix. Any tables, figures, or
charts should be carefully labeled and placed in the appendix.
Indicate the market structure in which the firm operates and apply Porter’s Five-Forces Analysis
to the organization to determine the profit threats it faces. Evaluate the strength of each of the
five forces using the template below as a guide. Answering the questions posed in that template
will require extensive research using multiple (cited) sources; and not “educated” guesses.
Describe any strategies the organization has used to weaken the strength of the five forces.
*Note: At least one personal interview with a policy-level person in the organization is required.
A typed copy of the list of interview questions should be included in the appendix. Personal
interviews and secondary source materials should be cited in the references.
Template for Doing a Five-Forces Analysis
Rivalry among competitors Characterization
Degree of seller concentration?
Rate of industry growth?
Significant cost differences among firms?
Excess capacity?
Degree of product differentiation among sellers? Brand loyalty
to existing sellers?
Buyers’ cost of switching from one competitor to another?
Are prices and terms of sales transactions observable?
Can firms adjust prices quickly?
Large and/or infrequent sales orders?
Use of cooperative pricing? History of cooperative pricing?
Exit barriers?
High industry price elasticity of demand?
2
Threat of Entry Characterization
Significant economies of scale?
Importance of reputation or established brand loyalties in
purchase decision?
Entrants’ access to distribution channels?
Entrants’ access to raw materials?
Entrants’ access to technological know-how?
Entrants’ access to favorable locations?
Experience-based advantages of incumbents?
Network externalities: demand-side advantages from a large
installed base of customers?
Government protection of incumbents?
Perceptions of entrants about retaliation from incumbents or
“toughness” of incumbents?
Threat of Substitutes or Support from Complements Characterization
Availability of close substitutes?
Price-value characteristics of substitutes?
Price elasticity of industry demand?
Availability of close complements?
Price-value characteristics of complements?
Power of Input Suppliers Characterization
Is the supplier industry more concentrated than the industry it
sells to?
Do firms in the industry purchase relatively small volumes
relative to other customers of the supplier? Is the firm’s
purchase volume small relative to sales of typical supplier?
Few substitutes for suppliers’ input?
Do firms in the industry make relationship-specific investments
to support transactions with specific suppliers?
Do suppliers pose credible threat of forward integration into the
product market?
Are suppliers able to price discriminate among prospective
customers according to ability/willingness to pay for the input?
3
Power of Buyers Characterization
Is buyers’ industry more concentrated than the industry it
purchases from?
Do buyers purchase in large volumes? Does a buyer’s purchase
volume represent a large fraction of the typical seller’s total
revenue?
Can buyers find substitutes for the industry’s product?
Do firms in the industry make relationship-specific investments
to support transactions with specific buyers?
Is price elasticity of demand of buyer’s product high or low?
Do buyers pose credible threat of backward integration?
Does product represent significant fraction of cost in buyer’s
business?
Are prices in the market negotiated between buyers and sellers
on each individual transaction, or do sellers post a “take-it-orleave-
it” price that applies to all transactions?

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