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ACCA Strategic Professional · Strategic Business Leader · Competitive forces

Brightway operates in a mature industry with slow growth, high fixed costs, and capacity added in large increments. Competitors sell near-identical products, and exit is difficult because specialised assets cannot be sold. Which conclusion about competitive rivalry is most appropriate?

Rivalry is likely to be intense, with a risk of price wars. Slow growth, high fixed costs, large capacity increments, undifferentiated products and high exit barriers all push firms to compete on price to fill capacity and keep weak competitors trapped in the industry.

  1. ARivalry is likely to be intense, with a risk of price warsCorrect
  2. BRivalry is likely to be weak because the products are identical
  3. CRivalry is weak because exit barriers keep the number of firms stable and encourage cooperation
  4. DRivalry is irrelevant because high fixed costs create entry barriers

Explanation

Slow growth means firms gain share only at others' expense. High fixed costs push firms to fill capacity by cutting prices, undifferentiated products give buyers no reason for loyalty, and high exit barriers keep weak firms in the market. Together these intensify rivalry. Identical products increase, not reduce, price competition.

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