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The suppliers of
complements create
value for the industry
and canexercise
SUPPLIERS bargaining power
Bargaining power of suppliers

INDUSTRY
COMPETITORS COMPLEMENTS

POTENTIAL Threat of
ENTRANTS Threat of
newentrants SUBSTITUTES
Rivalry among
existing firms substitutes

Bargaining power of buyers

BUYERS
1
 Substitutes and Complements
• Substitute: An alternative from outside the given industry for its
product or service. When its performance increases or its price
falls, industry demand decreases.
 Plastic vs. aluminium containers
 Video conference vs. business travel

• Complement: A product or service or competency that adds

value to original product. When its performance increases or
its price falls, industry demand increases.
 Google complements Samsung’s smartphones when it
comes with Google’s Android System.

• Complementor: If customers value your product more when

combined with another firm’s product or service.
 Michelin tires for Ford & GM cars
3–2
A Sixth Force -- Complementors

• The biggest benefit of considering complementors is

that they add a cooperative dimension to Porter’s
(1980) “competitive forces” model.

• “Thinking [about] complements is a different way of

thinking about business. It’s about finding ways to
make the pie bigger rather than fighting with
competitors over a fixed pie.To benefit from this
insight, think about how to expand the pie by
developing new complements or making existing
complements more affordable.”
• Brandenburger and Nalebuff

3–3
 Entry Choices

Exhibit 3.6
Source: Based on and
adapted from Zachary,
M.A., P.T. Gianiodis, G.
Tyge Payne, and G.D.
Markman (2014),
“Entry timing: enduring
lessons and future
directions,” Journal of
Management 41: 1409;
and Bryce, D.J., and
J.H. Dyer (2007, May),
“Strategies to crack
well-guarded markets,”
Harvard Business
Review: 84–92.

© McGraw Hill
Industries Evolve over Time as the Relationships
Between the Five Forces Change

• Dynamic 5-Forces Analysis

demand

time 3–5
 Strategy Highlight 3.2 6

The Rise of e-Sports

• League of Legends (LoL), the popular multi-player online

battle arena (MOBA) game developed and launched in 2009
by Riot Games of Los Angeles, went from being a small
niche game to a billion-dollar business, sparking the
explosive growth of the e-sports industry.

• Within two years of launch, LoL managed to accrue 1.4

million daily players and 3.5 million monthly average users
(MAU). Since then it has garnered 30 millions daily players
and made more than $7 billion in
revenues.

Copyright © 2017 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution
in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
 Strategy Highlight 3.2 7

The Rise of e-Sports

• In 2011, the Chinese tech company Tencent (also owner of

WeChat, the world’s largest social media and mobile
payment app with some 1 billion daily users) brought Riot
Games for $400 million.

• Riot Games uses a ‘freemium model” with the basic game for
free. It relies on four key tactics in its business model:
– In-game and ancillary transactions;
– Live e-sport events;
– Live-streamed e-sport events; and
– Merchandise sales.

Copyright © 2017 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution
in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
 Strategy Highlight 3.2 8

The Rise of e-Sports

• LoL dominated its competitors until the fall of 2017 when

Epic Games (also owned in part by Tencent) released
Fortnite, which is known as a “Battle Royale Game” --- i.e., a
multiplayer online game that continues until only one survivor
is standing.

• Unlike LoL, Fortnite is available on all consoles and mobile

devices. LoL is played on laptop or desktop only, and cannot
be played on mobile devices or game consoles, such as
Xbox. Fortnite is also less difficult to
play than LoL, making it especially
attractive to beginning gamers.
Copyright © 2017 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution
in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
 Strategic Groups and Mobility Barrier in U.S.
Domestic Airline Industry
Exhibit 3.8

Jump to Appendix 3.6 long image description

© McGraw Hill
Empirical Testing of Structure-Conduct (Strategy)- Performance

• ROE(j) = 14.7 + .050 CR4(j) + .119 [CAP/S](j) +

(2.08) (1.98)

1.30 [A/S](j) +1.40 [R&D/S](j) +0.26 [GROW](j)

(7.20) (2.95) (2.90)

t-statistics in parentheses R-squared = .43

CR4 = 4-firm concentration ROE = return on equity

R&D/S = R&D/Sales A/S = advertising/sales
CAP/S = capital expenditures/Sales GROW = demand growth

3–10