The four market model states that industries differ based on firm's ability to control
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The four market model states that industries differ based on firm's ability to control prices.
The four-market model, also known as the market power framework, states that industries differ based on a firm's ability to control four key factors: customers, suppliers, competitors, and potential new entrants. It's important to analyze these factors to understand the level of market power a firm possesses.
To determine a firm's ability to control these factors, you can follow these steps:
1. Customers: Assess the firm's relationship and influence over its customers. Factors such as brand loyalty, customer switching costs, and customer dependency on the firm's products or services can indicate the firm's control over customers. Market research, customer surveys, and studying customer behavior patterns can help gather relevant information.
2. Suppliers: Examine the firm's relationship with its suppliers. Evaluate the availability of alternative suppliers, the uniqueness of the firm's inputs, and the supplier's dependency on the firm as a customer. Analyze contracts, supplier concentration, and bargaining power to assess the firm's control over suppliers.
3. Competitors: Analyze the competitive landscape in the industry. Assess the number and size of competitors, their market shares, and their ability to differentiate their products or services. Consider factors like economies of scale, patents, technology, and branding. Conduct competitive analysis and market research to gather data on competitors.
4. Potential new entrants: Evaluate the barriers to entry for new firms in the industry. Factors such as capital requirements, regulatory barriers, economies of scale, and established brand loyalty can determine the firm's control over potential new entrants. Analyzing industry trends, market conditions, and incumbent firm strategies can provide insight into these barriers.
By considering these four factors, you can assess a firm's ability to control its industry and understand how it differs from other industries in terms of market power.