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CFA Level I · CFA Level I Exam · Industry and Competitive Analysis

A government introduces stricter emissions regulation that requires all domestic steel producers to install costly new equipment, while imported steel faces no such rule. In an industry analysis, this change is best described as an external factor that most likely:

The regulation most likely raises domestic producers' costs and may weaken their competitiveness against imports that avoid the rule. Government regulation is an external factor that changes industry profitability. It would tend to raise, not lower, barriers to entry, and it does not directly alter customers' bargaining power.

  1. Araises domestic producers' costs and may lower their competitivenessCorrect
  2. Bincreases the bargaining power of domestic producers' customers
  3. Creduces barriers to entry for new domestic steel producers

Explanation

Regulation is an external factor that can change industry economics. Compliance capex raises domestic costs relative to unregulated importers, hurting competitiveness. The rule would, if anything, raise entry barriers, and it does not directly shift customer bargaining power.

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