Criticism of Porter's 5 Forces: Competition Demystified

Porter's 5 Forces is the most well-known conceptual framework in strategy, but it's not without its critics. In the book Competition Demystified, Bruce Greenwald and Judd Kahn acknowledge that the 5 forces are valuable for analyzing an industry. However, they argue that one of the 5 forces dominates the other forces in terms of importance: the threat of new entrants (more specifically, barriers to entry).

If there are no barriers to entry, then competitors will be able to enter your industry and drive economic profits to zero, regardless of what you do. Thus, for Greenwald, strategy is about identifying, creating, and defending barriers to entry.

When a barrier to entry exists, this means the incumbent firm can do something that new entrants can't do. Greenwald says that this is the definition of having a competition advantage; thus, barriers to entry are synonymous with competitive advantage.

Greenwald outlines three types of competitive advantages:
1. Supply (being able to make your product more cheaply than your competitors)
2. Demand (having much stronger demand for your product than your competitors enjoy, due to captive customers)
3. Scale (having a much lower fixed cost per unit than competitors, due to a very high production volume)

Firms that possess one or more of these competitive advantages can earn above-average profits. Firms lacking any competitive advantage cannot hope to achieve such success.—
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[biglabrador]

Barriers to entry refer rather to the whole industry than to a particular company. It would be hard to expect a single company to create barriers to entry for the whole industry. Thus I think it would be more accurate to say that a company should create a competitive advantage (or a moat as W.Buffet calls it), which acts as a barrier to entry into a given company's specific playground (market segments it targets and operates in)