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The extent of rivalry among established companies is a function of an industry's competitive structure, demand conditions, and barriers to exit. Discuss.

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  • April 2, 2004
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Due to the current trend of globalization, industries of all sectors are becoming more and more competitive. Rivalry between firms is determined by the industries´ competitive structure which again is determined by globalization and the fact that leading economies are stagnating or show very little growth. This reflects on consumer expenditure as the end consumer is left with less money to spend, thus affecting choices made and at the end of the day also effecting firms who are confronted with a weaker demand condition.

An industry like the airline industry serves as a good example as to how intensive competition can develop; Especially in Europe, which has seen a rapid growth in the low cost carrier sector, established airlines are feeling the competition of these low cost carriers. Exit barriers in this industry are high, as high investments are needed to start up an airline company. Also the fact that a highly specialised infrastructure within the company has to be created makes it difficult for an exit from this industry. Mostly when a company is doing badly in this sector, it either results in bankruptcy (see Swissair in 2002) or takeovers against a symbolic fee (Deutsche BA takeover by German textile magnate H.R.Wöhrl in 2002 against 1 from British Airways, who accepted to get a 25% share of profits until 2006 and will support the operation till then with 35Mio. ) . Especially the second example shows how difficult it is to exit from this industry and that firms are even willing to hand over management to someone else practically for free and even support the operation for a period of time rather than exiting completely from the business, by which even more costs would be incurred.

The Deutsche BA which had been founded in 1992 as a daughter airline of British Airways can be considered as an established business within the industry, however due to the highly competitive structure of the industry, paired with the terrorist attack on New York of...