The various factors stated above are external form of competition. Rivalry among existing firms is the most visible form of competition. Firms in an industry are interdependent because Competitive actions include product improvements, new products, better customer services, price changes, promotional measures, etc.
The degree of rivalry among competing firms depends upon the following factors:
- Number of firms in the industry, their relative market share and their competitive strengths, etc.
- Degree of differentiation in the products of rival firms in terms of product positioning, prices, distribution channels, after sale service, credit terms, etc.
- State of growth of industry – in a stagnant industry one firm can expand its sales only at the cost of other firms.
- Cost advantages/disadvantages of rival firms- when fixed costs are high there is pressure to increase sales and competition increases. Similarly, when there are economics of scale firms are tempted to increase capacity and rivalry goes up.
- Strategic stake – when a number of firms have high stake in the industry rivalry is greater.
- High exit barters also lead to more rivalry.
- When competing firms are very diverse in the personalities, strategles and origins rivalry becomes stronger.