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Showing posts with the label Porter five forces model

Decision Making as Output and Bounded Rationality

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  The classical economics theories proceed on the assumption of rational agents. Rationality implies the economic agents undertake actions or exercise choices based on the cost-benefit analysis they undertake. The assumption further posits that there exists no information asymmetry and thus the agent is aware of all the costs and benefits associated with the choice he or she has exercised. The behavioral school contested the decision stating the decisions in practice are often irrational. Implied there is a continuous departure from rationality. Rationality in the views of the behavioral school is more an exception to the norm rather a rule. The past posts have discussed the limitations of this view by the behavioral school. Economics has often posited rationality in the context in which the choices are exercised rather than theoretical abstract view of rational action. Rational action in theory seems to be grounded in zero restraint situation yet in practice, there are numerous restra
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Porter and Market Structures

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  Management students and practitioners are well aware of the Porter’s five forces model. The model seems to underpin the foundations of both strategy and marketing. The forces are some agents that an economic agent has to confront when they enter the competition. In simple terms, Porter’s five forces lists five factor that determine market entry and strategy. It borrows from the Industrial Organization (IO) literature and is a pursuit to measure the competitive intensity of the industry albeit in qualitative terms. While there can be quantification of the competitive intensity, yet there exists a tendency for qualitative analysis for the Porterian framework.   In Porterian framework, the following five forces define the nature of competition in the industry or the market. The first force is the threat of new entrants. This implies the barriers of entry into the industry. if the barriers of entry are low, the new firms are likely to enter given the presence of supernormal profits.
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