How and why did the personal computer industry end up having such low profitability? Historically, the personal computer (PC) industry has sold its products at reasonably high prices while earning only small profit margins. One reason is the high competition in the PC industry, which has led to competitive pricing among manufacturers. Analyzing the competitive environment of the PC industry, it is evident that there are very few barriers to entry into this market. PCs have very low physical uniqueness and are made of standard components that require very little expertise to assemble. The capital requirements to set up an assembly line to produce PCs are also relatively low, estimated at around one million dollars (Rivkin & Porter, 1999 pg. 5), meaning that virtually any company can easily enter the market. Despite the skyrocketing demand for PCs, PC manufacturers are unable to profit due to the growing number of competitors. The PC industry is also affected by environmental turbulence due to fluctuations in the prices of its components. Constant innovation in PC technology makes older components obsolete and causes the prices of older versions to plummet. PC manufacturers that are stuck with inventories of obsolete products incur high costs of dumping these components. PC manufacturers that limit their inventories to reduce the impact of price fluctuations find themselves at a cost disadvantage by failing to reduce costs through economies of scale in component purchasing. Therefore PC manufacturers take high risks when stocking components and essentially lose profitability due to technological changes. The existence of many large manufacturers plus the continued entry of smaller manufacturers results in limited differentiation and diminished competitive advantage among PC manufacturers. All producers have access to similar suppliers and therefore have the same purchasing power, especially for transformers which are sold at the same price to all producers. It is clear that competitive advantage in the PC industry is not sustainable as easy replication by competitors promotes price wars that reduce profit margins for the industry as a whole. Ultimately, high competition and price fluctuations have led the PC industry to low profitability. Why has Dell been so successful despite low average profitability in the PC industry? Dell has been successful due to its differentiated strategy compared to its competitors.