Daniel Tipton and Jesse Torrez: Inconsistent Statements with Porter's Five Forces

Which statement is most inconsistent with Porter's five forces?

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Question

Daniel Tipton and Jesse Torrez are first-year MBA students at the Haas School of Business. Torrez has an economics background, but Tipton's background is in music. To help Tipton study one of the main tenets of competition theory, Torrez creates the following question and asks Tipton to identify the statement that is most inconsistent with Porter's five forces. Which statement should Tipton select?

Answers

A. Supplier power is higher when there are only a few suppliers to an industry.

B. To sustain above average returns on invested capital, firms should strive for economies of scale.

C. Porter's five forces are: rivalry among current competitors, economies of scale, threat of substitutes, bargaining power of suppliers, and bargaining power of buyers.

D. Rivalry increases when firms of equal size compete within an industry. C

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Explanations

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A. B. C. D.

Explanation

Porter's five forces are: rivalry among current competitors, threat of new entrants, threat of substitutes, bargaining power of suppliers, and bargaining power of buyers. Economies of scale are a way to lessen the threat of new entrants, but are not the only way to discourage competition. Companies can also have barriers to entry such as regulation or high start up capital. The other choices are true.

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