Charles Schwab in 2008

1. Analyze the competitive structure of the brokerage house industry using Porter’s five forces model. What are the principle drivers of profitability in this industry? How have changing regulations, demographics, and technology impacted competition over the last two decades?

Five Forces Analysis assumes that there are five important forces that determine competitive power in a business situation. These are:
1) Bargaining Power of Supplier
2) Bargaining Power of Buyers
3) Intensity of existing Rivalry
4) Threat of New Entrants
5) Substitutes

1) Bargaining Power of Supplier

In the on-line brokerage firms, we have 3 major categories of suppliers that are * Suppliers for IT infrastructure * Suppliers for the software required to operate these sites and offer functionality to customers * Information services that will offer content to brokerage firm’s website

Once the on-line brokerage commits to a company (supplier/s) of the above .these companies that supply this back-end infrastructure can be reasonably certain that the on-line brokerage will commit and remain a customer for some time since future equipment will usually have to be compatible with the existing architecture. The same dependencies can be attributed to the software vendors.

Another leading supplier consists of firms that provide financial information to the brokerages such as Aether, Reuters and Associated Press. However, Securities and Exchange Commission reporting requirements and the large number of companies that provide financial information make it unlikely that any information provide can exert significant power over a brokerage firm. 2) The Bargaining power of Buyer On –Line Brockerage Market is considered to be fragmented.Customers are considered to be educated, and this will make it a challenge that