CA Intermediate · Financial Management and Strategic Management · Strategic Analysis: External Environment
A cement manufacturer in Rajasthan finds that its industry has many equally sized rivals, slow market growth, high fixed costs and almost no product differentiation, so firms compete mainly through price cuts. Which statement best describes the competitive rivalry among existing firms?
Rivalry is intense. Many equal-sized competitors, slow growth, high fixed costs that push firms to fill capacity, and undifferentiated products where buyers switch easily all drive firms to compete on price, which is the typical pattern of high rivalry in Porter's model.
- ARivalry is low because products are standardised and customers face no choice
- BRivalry is intense because of slow growth, high fixed costs and low differentiationCorrect
- CRivalry is low because high fixed costs discourage price competition
- DRivalry is intense only because of the threat of substitutes
Explanation
Rivalry intensifies with many balanced competitors, slow growth, high fixed costs (pressure to fill capacity) and little differentiation or switching costs. Option 0 is wrong because standardised products make switching easy, which increases price competition, not reduces it.
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