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The possibility of new competitors entering the market can reduce the profitability of established firms due to increased competition. Industries with high barriers to entry are less threatened by new entrants, which can maintain higher profitability.

When suppliers have high bargaining power, they can charge higher prices or insist on more favorable terms, which can lower industry profits. Industries with many alternative suppliers and low switching costs can mitigate supplier power.

Buyers with strong bargaining power can influence pricing and demand better service, which can decrease industry profitability. When there are few buyers, or each buyer purchases large volumes relative to the size of the supplier, buyer power increases.

The presence of substitute products can limit the potential of an industry by placing a ceiling on the prices firms can charge. High threat of substitutes can occur in industries where the products are not significantly differentiated.