Skip to content

CS Professional · Strategic Management and Corporate Finance · Analyzing the External and Internal Environment

An Indian airline faces many competitors of similar size, slow industry growth, high fixed costs and low product differentiation, and frequently cuts fares to fill seats. Which conclusion about Porter's forces is most appropriate?

Rivalry is intense and depresses industry profitability. Many equal-sized competitors, slow growth, high fixed costs and undifferentiated service push firms to cut fares to fill seats, and these price wars erode margins for all airlines. The other conclusions ignore these classic drivers of rivalry.

  1. ARivalry among existing firms is intense, which tends to reduce industry profitabilityCorrect
  2. BRivalry is weak because fare cuts increase industry profits
  3. CSupplier power is the only relevant force
  4. DThreat of substitutes is irrelevant because competitors are many

Explanation

Many similarly sized rivals, slow growth, high fixed costs and little differentiation all intensify rivalry, and price cutting to fill capacity erodes margins industry-wide. Fare cuts do not raise industry profit, and substitutes such as rail remain relevant.

Did you get it right without looking?

One question tells you little. A timed set on Analyzing the External and Internal Environment shows your real accuracy, how long you take and where you lose marks.

Practise Analyzing the External and Internal EnvironmentFree diagnostic mock

More Analyzing the External and Internal Environment questions