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101 Concepts for the Level I Exam

Concept 75: Industry Life-Cycle Model

The following diagram shows an industry life cycle model.

1

Embryonic

  • Slow growth.
  • High prices.
  • Requires significant investment.
  • High risk.

Growth

  • Rapidly increasing demand.
  • Profitability improves.
  • Prices fall.
  • Competition is low.

Shakeout

  • Growth starts slowing down.
  • Competition is intense.
  • Profitability declines.

Mature

  • Little or no growth.
  • Industry consolidates.
  • Barriers to entry are high.

Decline

  • Growth is negative.
  • Excess capacity.
  • High competition.

Limitations of the life cycle model include:

  • Some stages may be longer or shorter than expected due to technological changes, government regulations, societal changes or demographics.
  • It is less practical for analyzing industries going through rapid changes.

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