Maybe because I worked a lot with Mike in the olden days, I am pretty lackadaisical about defining the boundaries of industries for purposes of strategy.
If you actually read Porter, he tells you that if you want to understand your strategy context, you had better consider all three of Rivalry, Substitutes and New Entrants. The second is an assessment of the company's own strategy-of how well it has positioned itself to prosper in this environment. And future kinds of players in Threat of New Entrants. The first step in structural analysis is an assessment of the competitive environment in which the company operates-the basic competitive forces and the strength of each in shaping industry structure. Alternatively, it can take an offensive approach by developing strategies designed to influence the balance of existing forces or to exploit a change in the competitive balance before rivals recognize it. A company may take a defensive posture, positioning itself so that its capabilities provide the best defense against the existing array of competitive forces. If the monopolist is subject to no threat of entry by a competitor. The goal of competitive strategy for a company is to find a position in its industry where these competitive forces will do it the most good or the least harm. The economics of the industry also may be such that new entrants would have to be. Threat of substitute products and services. to force down prices, bargain for higher-quality or play competitors against each other. The bargaining power of buyers Explain The extent to which buyers can affect the industry e.g. These forces range from intense in industries like tires, paper and steel, where no firm earns spectacular returns, to mild in industries such as oil field equipment and services, cosmetics and toiletries, where high returns are common. Threat of new entrants Explain The extent to which new competitors may decide to enter the industry and reduce the level of profits being earned by incumbent firms. The underlying economic and technological characteristics of the industry determine the strength of the five basic competitive forces-threat of new entrants, bargaining power of buyers, rivalry between existing competitors, threat of substitute products and bargaining power of suppliers. Intensity of competition is not a matter of luck. Lock down your suppliers and distributors or introduce new services that add to the unique value of your business.
The intensity of competition in an industry determines the degree to which investment inflows drive returns to the free market level, hence the ability of firms in the industry to sustain above average returns.