as a tug of war between rivals, with each competing

for more sales or market share.

But, according to Harvard Business School professor

Michael Porter, competition is more complex than that.

It's not about who's the biggest,

it's about who is the most profitable.

And profitability is defined by five competitive forces.

Let's start with your buyers, or customers,

who would always be happier to pay less and get more.

In the airline industry, price competition

is fierce, because so many travelers just

want the cheapest flight.

Then, there are your suppliers, who'd

ideally like to be paid more and deliver less.

Powerful suppliers will use their clout

to raise prices or insist on other more favorable terms.

A third source of competition comes

from substitute products or services

that meet the same basic need you do.

These aren't always obvious rivals.

The toughest competitors may come from different industries.

New entrants can also create tension.

For instance, Southwest Airlines challenged the industry

by flying just one kind of airplane,

reducing costs and allowing it to offer better ticket deals.

This pushed other carriers to spend more

to retain their customers.

Finally, you still have to fight your existing rivals,

and intense competition reduces everyone's profitability.

The major airlines have been in this position

for years, forcing them to defend increasingly

narrow profit margins with fees for exit row upgrades,

checked bags, even snacks.

These five forces define every industry structure

and shape your company's future.

Once you understand them, you can make better predictions

create more competitive strategies,

and increase your profits.