When is competitive rivalry between firms most likely to be high?

Competitive rivalry between firms tends to be high when there are many firms in the industry. This situation creates an environment where businesses compete for market share, leading to increased pressure on prices, quality, and innovation. A large number of firms typically results in more competitive actions, such as aggressive marketing strategies, promotions, and improvements in customer service.

The presence of many competitors can also mean that each firm has a relatively small market share, making it crucial for them to fight for customers. This intense rivalry can stimulate innovation and efficiency but can also lead to decreased profitability for the firms involved as they lower prices or increase spending to attract customers.

In contrast, when a market is rapidly growing, firms may focus more on capturing new opportunities rather than competing aggressively with each other. Low costs of leaving the industry can lead to a more stable environment with fewer exit barriers, potentially reducing competition. If switching suppliers is easy, the focus may be more on supplier relations rather than direct competitive rivalry among firms. Hence, the number of firms is a key factor in determining the level of competitive rivalry.