CS Professional · Strategic Management and Corporate Finance · Competitive Positioning
A regional airline faces many competitors on the same routes, high fixed costs, near-identical services and slow industry growth. Passengers can also switch to railways for short trips. Which statement best applies Porter's model?
Rivalry is intense and the railway substitute further limits pricing power. Many competitors, similar services, high fixed costs and slow growth push firms into price cutting to fill capacity, while railways give passengers an alternative for short trips, capping the fares the airline can charge.
- ARivalry is intense and the substitute threat from railways further limits pricing powerCorrect
- BRivalry is weak because fixed costs are high
- CThe substitute threat is irrelevant because the airline sells a service
- DSupplier power is the only relevant force, so no other force affects profitability
Explanation
Many rivals, undifferentiated service, high fixed costs and slow growth intensify rivalry, as firms cut prices to fill capacity. Railways are a substitute performing the same function, capping the price the airline can charge. High fixed costs increase rivalry rather than reduce it, and substitutes apply to services as well as goods.
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