Influence of rivalry among competitors
Rivalry is the competitive struggle between companies in an industry to gain market share from each other. A more intense rivalry usually means that there are lower prices and more spending on non-price-competitive weapons. These would be things such as in-flight complimentary items like drinks and snacks. A more intense rivalry will lower prices and raise costs. This means that this makes the window for profitability smaller. If the rivalry is less intense, the company can raise its prices and spend less money on non-price-competitive weapons. This would mean an increase in industry profits. There are four main factors that deal with the intensity of rivalry among competitors in an industry: industry competitive structure, demand conditions, cost conditions, and exit barriers.
The competitive structure of an industry refers to the number and size distribution of companies in the industry. There are two types of industries: the fragmented industry and the consolidated industry. A fragmented industry is an industry with a large number of small to medium sized companies that aren’t in a position to determine industry prices. This is not the airline industry. The airline industry is a consolidated industry, which is an industry dominated by a smaller number of larger companies that are in position to determine industry profit. Companies in the airline industry are interdependent, because any competitive move that they make directly affects the market share of its rivals and their profits. If one company makes a move, this makes the other companies have to react to that move. So if a big company like Southwest airlines significantly drops their price or offers something like free luggage, a company like US Airways will have to think about either matching that offer or making a better one. The rivalry between companies increases as companies try to have the lowest price or offer more value to the customers. This in turn...
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