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This kind of industry structure, of course, offers the worst prospect for long-run profitability. In the economists’ “perfectly competitive” industry, jockeying for position is unbridled and entry to the industry very easy. It ranges from intense in industries like tires, metal cans, and steel, where no company earns spectacular returns on investment, to mild in industries like oil field services and equipment, soft drinks, and toiletries, where there is room for quite high returns. The collective strength of these forces determines the ultimate profit potential of an industry. The state of competition in an industry depends on five basic forces, which are diagrammed in the Exhibit. Customers, suppliers, potential entrants, and substitute products are all competitors that may be more or less prominent or active depending on the industry. Rather, competition in an industry is rooted in its underlying economics, and competitive forces exist that go well beyond the established combatants in a particular industry. Moreover, in the fight for market share, competition is not manifested only in the other players. While one sometimes hears executives complaining to the contrary, intense competition in an industry is neither coincidence nor bad luck. Yet it is easy to view competition too narrowly and too pessimistically. The essence of strategy formulation is coping with competition.