Multiple Choice
In the context of competitive markets, the competitive threat that outsiders will enter a market is weaker when:
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3. The Market Forces of Supply and Demand
Competitive Markets
Multiple Choice
A competitive strategy of striving to be the low-cost provider is particularly attractive when:
A
there is little competition and firms have significant pricing power
B
customers value product differentiation over price
C
products offered by different firms are largely identical and buyers are price sensitive
D
barriers to entry are high and new entrants are unlikely
Verified step by step guidance1
Step 1: Understand the concept of a low-cost provider strategy. This strategy focuses on minimizing production and operational costs to offer products at the lowest price in the market, attracting price-sensitive customers.
Step 2: Identify the market conditions where this strategy is most effective. It works best when products are largely identical (homogeneous), so customers choose based on price rather than product features.
Step 3: Recognize the role of buyer price sensitivity. When buyers are sensitive to price changes, a firm with the lowest cost can capture more market share by offering lower prices.
Step 4: Contrast this with situations where product differentiation is valued. If customers prefer unique features or brand reputation over price, a low-cost strategy is less attractive.
Step 5: Note that in markets with little competition and high barriers to entry, firms have pricing power, so competing on cost alone is less critical. Therefore, the low-cost strategy is particularly attractive when products are similar and buyers care about price.
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