The Value Curve: P Indifference Curve P1----------------------------------------

Question

The Value Curve: P Indifference Curve P1-------------------------------------------- B P0---------------------------A------------------ C1----------------------------------------------- C0----------------------------------------------- Q0 Q1 a. Consider that the industry is operating at point B (P1,C1). How might a firm follow a cost leadership approach. b. Assume that the industry is operating at point A(P0,C0). How might a firm follow a benefit leadership approach. c. In terms of price margin above cost, would a cost leadership or a benefit leadership approach benefit the firm most? d. Consider the elasticity characteristic of the demand curve. Assuming that the demand curve is inelastic, what can we say about the standard cost leadership approach? Would this approach be more favorable to the firm if the demand curve were elastic? Please explain your answer.

Explanation / Answer

If cost-leadership strategies can be implemented by numerous firms in an industry, or if no firms face a cost disadvantage in imitating a cost-leadership strategy, then being a cost leader does not generate a sustained competitive advantage for a firm. The ability of a valuable cost-leadership competitive strategy to generate a sustainted competitive advantage depends on that strategy being rare and costly to imitate. A firm pursuing a cost-leadership strategy attempts to gain a competitive advantage primarily by reducing its economic costs below its competitors.

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