Overview of the Industry
Threat of New Entry
For the digital camera industry, new entrants need to have economies of scale and distribution channel. As for economies of scale, new entrants need to invest a lot in expensive production equipment, huge plant, lots of skill labours, what’s more, they need to have their distribution channels to sell the products, which are very difficult requirements for the new entrants to meet. Hence, the threat of new entry is low.
Digital cameras consumers are normally small buyers, but they are very important to the industry. Consumers can switch between alternatives easily without incurring high switching costs. Since the functions of digital camera are very similar among different brands, the product has low differentiation. Moreover, there are many alternatives in the market: when Kodak introduced the DC40 in 1995, there were two other models under $1000, but by 1996, there were 25 different brands in the category”. (Page 6 case) Therefore, buyer power is high in the digital camera industry.
Based on the fact that a digital camera is made from many different parts, the industry should have many small suppliers. Also, assume that there are many suppliers for any specific part of a digital camera, the whole industry has a very low switching cost. The industry is very important to supplier because mass production of digital camera would need huge supply of part. As a result, the supplier power is low in the industry.
Threat of Substitutes
The main substitutes of digital camera are instant camera and traditional camera. In terms of function, the two substitutes have similar functions with digital camera, which lowers the maximum price that buyers are willing to pay. Moreover, the two substitutes have captured a big market share. (Page13 case) Hence, the threat of substitution is high.
Rivalry Among Existing Competitors
Rivalry among existing competitors is high. First, digital camera’s...