Question

Which of the following industry features are likely to lead to a longer and more severe shakeout stage?

I. Demand is expected to grow beyond the industry's current production capacity

II. Dominant firms have strong isolating mechanisms preventing imitation

III. The industry's consumers include many small groups of buyers with unique preferences

A. I and II

B. I and III

C. II and III

D. I, II, and III

Answer 1

The shakeout stage is defined as the one in which competition between firms becomes more intense that forces weaker firms out of the industry. The shakeout stage is long and severe when dominating firms have a quite strong isolating mechanism that cannot be copied. Also, it is long and severe when the consumers are many small groups of buyers who have unique preferences instead of common ones. It leads to intense competition that weeds out weaker and smaller firms. Therefore, the correct option is (C). Option I is wrong, growth in demand beyond the production will not lead to a severe shakeout.