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

Meridian Pharma operates in an industry where products are highly differentiated, demand is growing quickly, fixed costs are low, and exit barriers are low. Rivals are few and none is dominant. Applying Porter's rivalry force, which conclusion is most appropriate?

Rivalry is likely to be moderate. Fast growth allows all firms to expand, differentiation lessens price competition, low fixed costs reduce discounting pressure, and low exit barriers let weak firms leave. The conditions do not push firms into aggressive fights for share.

  1. ARivalry is likely to be intense because the industry is growing quickly
  2. BRivalry is likely to be moderate because of differentiation, fast growth and low exit barriersCorrect
  3. CRivalry is likely to be intense because exit barriers are low
  4. DRivalry cannot be assessed unless buyer power is known

Explanation

Fast growth lets firms expand without taking share from others, differentiation reduces price competition, low fixed costs reduce pressure to cut prices to fill capacity, and low exit barriers stop weak firms staying and fighting. Together these point to moderate rivalry. Option 1 wrongly treats growth as intensifying rivalry.

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