Which of the following best describes the relationship between competitive intensity and the power of the five forces in an industry?

• A. Higher competitive intensity generally increases the power of the five forces.
• B. Higher competitive intensity generally decreases the power of the five forces.
• C. Competitive intensity only affects the threat of substitutes among the five forces.
• D. Competitive intensity has no effect on the power of the five forces.

Answer: (A)

Verified step by step guidance

1. Step 1: Understand the concept of the 'five forces' framework developed by Michael Porter, which includes the threat of new entrants, bargaining power of suppliers, bargaining power of buyers, threat of substitute products or services, and competitive rivalry within the industry.
2. Step 2: Define 'competitive intensity' as the degree of competition among existing firms in the industry, which influences how aggressively firms compete on price, quality, innovation, and marketing.
3. Step 3: Analyze how an increase in competitive intensity affects each of the five forces. For example, higher rivalry can increase the bargaining power of buyers and suppliers, raise the threat of substitutes, and make entry more difficult or easier depending on market conditions.
4. Step 4: Recognize that higher competitive intensity generally strengthens the overall power of the five forces because firms are more aggressively competing, which can erode profitability and increase pressure from all forces.
5. Step 5: Conclude that the best description is that higher competitive intensity generally increases the power of the five forces, as it amplifies the competitive pressures within the industry.