NISM Certifications · NISM-Series-XV: Research Analyst · Industry Analysis
An industry has very high fixed costs, large capacity that can be added only in big blocks, and products that customers see as near-identical commodities. Which outcome is most likely for rivalry among existing firms?
Intense price competition is most likely. High fixed costs push firms to fill capacity even at low prices, and undifferentiated commodity products give buyers no loyalty. Together these make rivalry fierce, particularly when demand slows and excess capacity appears.
- AIntense price competition, especially during demand slowdownsCorrect
- BWeak rivalry because fixed costs deter price cuts
- CRivalry that is independent of capacity utilisation
- DGuaranteed premium pricing because of product similarity
Explanation
High fixed costs push firms to keep capacity utilised, so they cut prices when demand falls. Undifferentiated products give buyers no reason to pay a premium, which intensifies price rivalry. The other options reverse these effects.
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