NISM Certifications · NISM-Series-XV: Research Analyst · Industry Analysis
An analyst observes that an industry has high fixed costs, low product differentiation, and exit barriers that keep unprofitable firms in business. Which outcome is most likely for this industry?
Intense price competition and margin pressure is most likely. High fixed costs encourage firms to cut prices to fill capacity, lack of differentiation makes price the main competitive tool, and exit barriers keep weak firms operating. All three raise rivalry and reduce industry profitability.
- AIntense price competition and pressure on marginsCorrect
- BWeak bargaining power of buyers
- CVery low threat of substitutes
- DSustained above-average industry profitability
Explanation
High fixed costs push firms to fill capacity by cutting prices, undifferentiated products make price the main basis of competition, and high exit barriers keep excess capacity in the market. Together these intensify rivalry and squeeze margins, so above-average profitability is unlikely.
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