Multiple Choice
Which of the following is NOT a potential pitfall of a focus strategy in competitive markets?
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3. The Market Forces of Supply and Demand
Competitive Markets
Multiple Choice
In a competitive market, how is a cost-leader typically protected from threats posed by powerful suppliers?
A
By relying exclusively on a single supplier for all inputs
B
By having the ability to switch to alternative suppliers due to lower costs
C
By increasing the price of its products to offset higher input costs
D
By reducing production to minimize exposure to supplier power
Verified step by step guidance1
Understand the concept of a cost-leader in a competitive market: a firm that achieves the lowest production costs and can offer lower prices than competitors.
Recognize that powerful suppliers can threaten firms by raising input prices or limiting supply, which can increase production costs.
Analyze how a cost-leader can mitigate supplier power: since it operates with lower costs, it often has the flexibility to switch between multiple suppliers rather than relying on a single one.
Note that relying exclusively on a single supplier increases vulnerability, while having alternative suppliers allows the cost-leader to negotiate better terms or switch if prices rise.
Conclude that the cost-leader's protection comes from its ability to switch to alternative suppliers due to its lower costs, maintaining competitive advantage despite supplier power.
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