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CA Intermediate · Financial Management and Strategic Management · Strategic Analysis: External Environment

A regional airline operates in a market where fares are cut frequently, fixed costs are high, rivals are of similar size, and exit is costly because aircraft are specialised assets. Which statement best describes the competitive rivalry force?

Rivalry is likely to be intense. High fixed costs push firms to fill capacity through price cuts, similar-sized competitors lack a dominant leader, and high exit barriers keep weak players in the market, all of which heighten competition among existing firms.

  1. ARivalry is likely to be intenseCorrect
  2. BRivalry is likely to be mild
  3. CRivalry is irrelevant because of high fixed costs
  4. DRivalry is low because rivals are of similar size

Explanation

Frequent price cuts, high fixed costs, similar-sized rivals and high exit barriers all intensify rivalry. Similar size increases rivalry rather than lowering it, so option D is wrong.

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