Rivalry Amongst Existing Companies
Competitive force refers to the extent of rivalry
amongst existing firms within an industry. Intense rivalry benefits consumers as they are able to get same goods at lower prices and channel of distribution too provide economical and efficient services, On the other hand if the competitive force is weak, it generates opportunity for the existing firms to raise prices and earn more profits. Extent of rivalry amongst established firms depends upon.
(i) Demand Conditions-Growing demand williessen rivalry as companies can increase their sales without grabbing market share of rivals. Growing demand creates opportunities for companies to expand. Competition becomes all the more fierce in the event of fall in demand.
(ii) Competitive Structure within Industry-Competitive structure represents the number of competing firms and their relative market share. Consolidated industry structure enables firms to charge more price. In order to maintain their position the firm will have to innovate and differentiate. In fragmented structure the firms will be required to cut cost because of higher rivalry and price war.
(iii) Exit barriers- These represent economic compulsions and emotional factors that keep companies competing in the industry despite low returns. These exist barriers are threats to industry when demand is going down. If exit barriers are high companies resort to excess production and price war in order to sell more. If exit barriers are high and demand is growing companies have opportunities to raise price. If exit barriers are low and demand is declining there are moderate threats of excess capacity and price war. On the other hand if exit barriers are low and demand is going up the firms will have opportunities to increase prices and expand operations. These exit barriers represent fixed cost, retrenchment compensation and emotional attachment to a unit.