Costs Are A Positive For Ebay Management

Essay add: 15-01-2016, 11:39   /   Views: 149

Porter suggests as part of his theory that there are five competitive forces that form the rules of competition: the entry of new competitors, the threat of substitutes, the bargaining power of buyers, the bargaining power of suppliers and the rivalry among the existing competitors. These forces can change over time as an industry evolves and are different depending on industry specific conditions. The combination of these five forces is what companies need to navigate their business around in order to be able to earn above-average returns. Porter is of the opinion that "the five forces determine industry profitability because they influence the prices, costs and required investment of firms in an industry - the elements of return on investment". The five forces and the factors determining the intensity of each force as suggested by Porter and outlined in figure 1.

Threat of New Entrants

Industry requires economies of scale: Economies of scale help producers to lower their cost by producing the next unit of output at lower costs. When new competitors enter the market, they will have a higher cost of production, because they have smaller economies of scale. Economies of scale positively affect EBay.

High switching costs for customers: High switching costs make it difficult for customers to change which products they normally purchase, due to costs. High switching costs positively affect EBay.

Entry barriers are high: When barriers are high, it is more difficult for new competitors to enter the market. High entry barriers positively affect profits for EBay.


Low storage costs: When storage costs are low, competitors have a lower risk of having to unload their inventory all at once. Low storage costs are a positive for EBay.

Large industry size: Large industries allow multiple firms and produces to prosper without having to steal market share from each other. Large industry size is a positive for EBay. This statement will have a short-term positive impact on this entity, which adds to its value.

Fast industry growth rate: When industries are growing revenue quickly, they are less likely to compete, because the total industry size is also growing. The only way to grow in slow growth industries is to steal market-share from competitors. Fast industry growth positively affects EBay. … "Fast Industry Growth Rate (EBay)" has a significant impact, so an analyst should put more weight into it. "Fast Industry Growth Rate (EBay)" will have a long-term negative impact on this entity, which subtracts from the entity's value. This statement will lead to a decrease in profits.

Relatively few competitors: Few competitors mean fewer firms are competing for the same customers and resources, which is a positive for EBay.


Substitute has lower performance: A lower performance product means a customer is less likely to switch from EBay to another product or service.

Buyers and Sellers must interact at eBay because it has volume

Substitute product is inferior: An inferior product means a customer is less likely to switch from EBay to another product or service.

Limited number of substitutes: A limited number of substitutes mean that customers cannot easily find other products or services that fulfil their needs. Limited substitutes are a positive for EBay.

Bargaining Power of Supplies

Large number of substitute inputs: When there are a large number of substitute inputs, suppliers have less bargaining leverage over producers. This is due to competition among substitutes. Greater competition positively affects EBay.

Low concentration of suppliers: A low concentration of suppliers means there are many suppliers with limited bargaining power. Low concentration of suppliers positively affects EBay.

Inputs have little impact on costs: When inputs are not a big component of costs, suppliers of those inputs have less bargaining power. Low cost inputs positively affect EBay.

Critical production inputs are similar: When critical production inputs are similar, it is easier to mix and match inputs, which reduces supplier bargaining power; a positive for EBay

Volume is critical to suppliers: When suppliers are reliant on high volumes, they have less bargaining power, because a producer can threaten to cut volumes and hurt the supplier's profits. This can positively affect EBay.

Low cost of switching suppliers: The easier it is to switch suppliers, the less bargaining power they have. Low supplier switching costs positively affect EBay.

Bargaining Power of Buyers

Large number of customers: When there are large numbers of customers, no one customer tends to have bargaining leverage. Limited bargaining leverage helps EBay. … "Large Number Of Customers (EBay)" will have a long-term positive impact on the this entity, which adds to its value.

Product is important to customer: When customers cherish particular products they end up paying more for that one product. This positively affects EBay.

Summary of Porter's 5 Forces of Competitors

The use of competitive strategy is a tool for creating a defendable position against the five competitive forces. It is used to mitigate or offset the influence that for example suppliers and buyers have in an industry, or perhaps to make competitive moves to make entry barriers higher. Dealing with the five forces, competitive strategy can be used in various ways and a few main approaches exist. It can be used to position a company in a way that its capabilities are best put together and in play to protect against the existing forces. It may also be used to influence in various ways the balance of the forces that prevail in order to improve company position in an industry and lastly, it can be used to try to anticipate changes in the underlying factors behind the competitive forces in order to stay ahead of the competition, adapting a strategy best suitable for the conditions that are summarizing Porter's Five Forces this paper use the competitive advantages of eBay.

Its auctions - as a seller if you are going to auction off a used electronic item, eBay is the best place to do it. Why? Risk of low selling price- On another site you will probably fail to get fair market value for your item because you won't have the buyer traffic that ebay gets. On eBay you might get an nonpaying bidder, neg'd and then NARU'd for leaving negative comments in the postive feedback, but at least you tried.

Product Depth- "You can find it on eBay"....buyers are attracted to eBay because it has just about anything you can think of for sale.

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