Bryan is a manager at a software firm. The CEO tells him that the industry as a whole has become increasingly profitable over the past five years. Based on this information, Bryan is most likely to expect
A) increased competition in the future and therefore he should recommend that the company upgrade its products to slow the entry of rival companies.
B) increased profitability in the future and therefore he should recommend that the company remain on its current course.
C) a leveling off of profitability in the next few years and therefore he should recommend that the company cooperate with its rivals to stimulate the industry.
D) decreased competition in the next few years and therefore he should recommend that the company take advantage of its pricing power.

Question

Quizplus · Accepted Answer

One of the key insights of the five forces model is that the more profitable an industry, the more attractive it becomes to competitors. With the threat of additional capacity coming into an industry, incumbent firms may lower prices to make entry appear less attractive to the potential new competitors, or they may spend more to satisfy their existing customers.

Bryan Is a Manager at a Software Firm