Question

According to Michael Porter’s five forces model, industry profits are likely to be low when:

			A)	the level of rivalry among competitors is low.
			B)	potential for entry into the industry is difficult.
			C)	there are several suppliers of inputs.
			D)	there are only a few large customers for the product.
			E)	there is no substitute for the product.

Answer 1

Answer:

Michael Porter’s five forces model was created to establish how the different factors affect the industry.

Michael Porter's five forces model are as follows;

• Threats of new entrants
• Bargaining power of the buyer
• bargaining power of supplier
• Rivalry among the current players
• Threats from substitutes.

Rivalry among the current players is normally understood as competition, for any player it is obvious that the competitor influences the prices & in competitive environment entity have to compete for aggresivel for the prices which results in low profits.

If there are only few large customer of the product then it may affect the profitability of entity as entity produce the goos or rendering the services but there are few no. of large customer which lead to low profitabilty.

Accordingly Option (D) is the correct answer.