Micro 101 Week 7 DQR

1/19/23, 2:30 PM W7: Pricing and Competition - ECON101 D008 Fall 2022

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W7: Pricing and Competition

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How would a low-cost price leader enforce its leadership through implied threats to a rival? How does a firm become a “low cost” price leader? Discuss the specific type of market structure that implied threat strategy can be adapted.

Submit your initial post by midnight, Day 3. Please respond to 2 of your classmates' posts by midnight, Day 7.

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W7: Pricing and Competition Kyle Detwiler posted Jan 18, 2023 8:37 PM Subscribe

Greetings Class,

This week we are asked to take a look at How would a low-cost price leader enforce its

leadership through implied threats to a rival how a firm becomes a low cost price leader.

Then discuss the specific type of market structure that the implied threat strategy can be

adapted. First we will look at how a low-cost price leader enforces its leadership through

implied threats to a rival. This can be accomplished for the low cost price leader by

1/19/23, 2:30 PM W7: Pricing and Competition - ECON101 D008 Fall 2022

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Detwiler

dropping prices by means of either lowering production costs, or they can find a way to

acquire the goods for sale at a much lower cost. This strategy can be effective if they are

so low that it is un-likely that anyone would purchase from anyone but them. Additionally,

the size and volume of the sales has to be at a high level for the competitors to notice and

try to compete with them.

The specific market strategy that an implied threat strategy can be adapted to is an

oligopoly. This market structure is one of few firms that know any of their actions will

produce a response from its competitors. This structure allows a competitor to use an

implied threat strategy because it is easy for the few firms to identify the strategy being

used as well as the low cost leader is able to evaluate the market easily and set pricing to

be a low cost price leader. This strategy is often not sustainable for a company and can

lead to a company being unsuccessful. (Kumar, 2006) Thanks for reading and I look forward

to any questions.

Bibliography Kumar, N. (2006, December). Harvard Business Review . Retrieved from Strategies to Fight Low-Cost Rivals:

https://hbr.org/2006/12/strategies-to-fight-low-cost-rivals

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W7: Pricing and Competition Yoselin Coronel-Torres posted Jan 18, 2023 10:59 PM Subscribe

Greetings Class and Professor,

A low-cost price leader is a company that has a sizable portion of the market and is able to

manufacture goods and services at a cheaper price than competitors and runs the danger

of driving other companies out of the market if they don't match the pricing. A low-cost

leader may use strategies like a price war to lower the price of a good below the cost of

manufacturing of a rival to enforce its leadership. If the price gets too low, it could

jeopardize the competitor's business. Predatory is a pricing method used to drive

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Annabelle Laud

competitors off the market by lowering the price to a point where doing so would be

unprofitable. A low-cost firm could use this strategy in an oligopoly market. According to

our lesson, a market with an oligopoly has a small number of businesses that are aware of

their interdependence in terms of pricing and production strategies. Each company has a

reasonable amount of market power due to the small number of firms. The four main

domestic airlines, Delta Airlines, American Airlines, Southwest Airlines, and United Airlines,

are examples of this tactic. These major airlines would have to band together in order to

raise fares and generate more financial gain. Smaller airlines can present more competition

or more problems for the market business, thus the major airlines must still be on the

lookout for them. These tiny enterprises make use of innovation and technology, as well as

reduced overhead costs, to provide cheaper costs.

Hayes, A. (2022, July 8). What are current examples of oligopolies? Investopedia. Retrieved

January 18, 2023, from https://www.investopedia.com/ask/answers/121514/what-are-

some-current-examples-oligopolies.asp

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Haley Garza W7 Haley Garza posted Jan 18, 2023 10:26 PM Subscribe

Good evening class,

A low-cost price leader enforces its leadership through implied threats to a rival by creating

a marketing strategy that challenges their competitors prices through a price match policy.

What that means this that they allow the customer to purchase the exact same product

that is at their rivals store at the same price in its store. Not only does the store offer the

lowest prices and leads the market it also will beat any competitor pricing through

matching the prices. It has to be the exact same model and brand. I have specifically gone

to stores of my preference which are the low cost market leaders like Walmart and Target,

and even if there is another store offering what I want for a lower price, I still go to the

market leaders. And why not, because I am going to get the price matched.

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Last post yesterday at 11:05

PM by Yoselin Coronel-Torres

How does a firm become a “low cost” price leader?A firm can become a low-cost price

leader by having a dominant market share, getting a better understanding of market forces,

or by having a non-competitive agreement with other businesses in the industry.

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W7: Pricing and Competition philip philip posted Jan 18, 2023 9:30 PM

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A low-cost price leader would threaten its competitors and rivals by taking away the client

base they have. For example, if two barbershops were open in the same area with both

prices of haircuts being the same. Let us say barbershop A drops its price to be $5 cheaper

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Week 7 Joshua Berenson posted Jan 18, 2023 8:42 PM

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A low-cost price leader would make the competition feel threatened by offering lower

prices for the same good. If the leader is capable of lowering the cost to make the good as

well as sell the good for a discounted rate, then in the eyes of the consumer it is more

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W7: Pricing and Competition - Anthony Anthony Murphy posted Jan 18, 2023 8:10 PM Subscribe

Hello everyone,

1/19/23, 2:30 PM W7: Pricing and Competition - ECON101 D008 Fall 2022

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Week 7 discussion-Na'Seem Jones Na'Seem Jones posted Jan 18, 2023 5:44 PM Subscribe

Hello Professor and fellow classmates. The best way for a firm to be a low-cost price leader is to collude with the competition. Price fixing would be the easy way to set prices to where the firm would profit the most. The market would have to be an Oligopoly, or a state of limited competition. It would also have to be very little difference in the products, so that there is little to no competitive advantage that another firm to use to market their product over the price leader. The most obvious way for firm to enforce its leadership is to lower prices. That is not the most strategic way because lowering prices usually ends up disrupting the market more than benefiting the firm. Other strategies would place more value on customer service or support, not playing the pricing game, meaning not letting your competitions raised or lowered pricing effect you price, and so on. As explained in the lesson plan, working together with the competition usually leads to the best profits in an Oligopoly. That is keeping in mind only so much cooperation is legal. Collusion and cartels are no legal, so firms usually compete against one another by responding to competition in raising or lower prices, which usually ends up costing profits. Another strategy in an Oligopoly would be to force out competition, since that will provide a larger market share for the price-leading firm. What the price leading firm has to understand is that

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actively trying to outmaneuver the competition usually goes badly for them and recognize that focusing on what

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W7: Pricing and Competition Rachel Rivera posted Jan 18, 2023 2:05 PM

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Low-cost price leaders are the firms who hold a large portion of share in a specific market. For this reason, they are typically able to produce goods and or services at a reduced rate than the firms in the same market as them. A low-cost price leader will enforce its leadership by lowering their prices or even providing deals or sales. When a low-cost price leader does this it will typically cause other firms in the same industry to follow along in order to stay competitive. The specific market structure that this type of strategy can be adapted would be an oligopoly market. This type of market is defined as, “situation in which a market is dominated by a few firms, each of which recognizes that its own actions will produce a response from its rivals and that those responses will affect it” (Rittenberg, pg. 283). In this type of market, the firms that dominate are interdependent, which means that what one firm does will directly affect each of the others. So, this will lead firms to follow the low-cost price leader by dropping prices when they do. Typically, a firm becomes a low-cost price leader when it seems to control a large share of the market over a long period of time. The leader of the market is one that is typically well known amongst the firms in the same industry. References Rittenberg, L., & Tregarthen, T. (2009). Principles of Microeconomics. Irvington, NY: Flat

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Jack Marshall week 7 Jack Marshall posted Jan 18, 2023 1:31 PM Subscribe

A low-cost price leader could use their low prices and ability to control the equilibrium price as enforcement mechanisms through fear of a price war. Especially when they are a large corporation with a massive amount of capital, they are able to modify the equilibrium price without the assistance of any other corporation. Also, as a more giant corporation, a price war may not destroy them as quickly as a much smaller rival.

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A company focuses on low-cost leadership when emphasizing low cost for their goods or services. For example, Walmart has incorporated many strategies to help lower operational costs enabling them to continue their competitive stance on low-cost leadership.

With the inception of new technology, Walmart has been a leader in the battle to streamline the traditional shopping center. Automating some of their production methods and utilizing technology that enables self-checkouts all may have a higher upfront cost but save money overall. This utilization of automation and technology allows Walmart to lower overall operational costs.

Walmart has also utilized a green initiative to both lower utility bills and attract the green energy crowd. They do this through the utilization of solar panels on the roof and skylights throughout the building to reduce the need for lighting.

Another method Walmart uses to lower operating costs is the minimization of spending on human resources. Traditionally low wages, a lack of employee education/training, and a lack of health benefits contribute to Walmart's approach to low-cost leadership. This specific approach has been relatively unpopular among employees and the general public. Recognizing this fact, Walmart utilizes the tagline “Save money, live better” in an attempt to retain as many loyal customers as possible while still attempting to draw a new customer base.

Walmart owns a fleet of tractor-trailers totaling roughly 3,000 trucks and approximately 12,000 trailers. However, they may incur ongoing insurance and maintenance costs associated with owning a fleet of trucks and trailers and cutting all outsourcing costs. This ownership creates tangible, leverageable assets and saves them money in the long run.

An oligopoly is a market structure with few firms, none of which can keep the others from having significant influence yet having the ability to exert significant control over a given market. An implied threat strategy can work well in this market, as the threat of a price war driving

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W7: Pricing and Competition Annabelle Laud posted Jan 18, 2023 3:24 AM Subscribe

A low-cost price leader enforces it’s leadership through a strategic decision making. Unlike

it’s rival (monopolistic competitive market) there is less to no difference between the

products which identifying it from another product may be harder unless it’s intentionally

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by Shirley Shuler

Shirley Shuler Shirley Shuler posted Jan 18, 2023 9:55 AM

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Hello Professor and class,

A low cost leader would maintain their position of dominance by extending discounts or

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W7: Pricing and Competition Charles Blackmon posted Jan 17, 2023 10:11 PM

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Hello,

A low -cost price leader would enforce it's leadership through implied threats to a rival by

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Pricing and Competition Liza Escalante posted Jan 17, 2023 5:53 PM • 355 Words

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How does a firm become a "low-cost" price leader? How would a low-cost

price leader enforce its leadership through implied threats to a rival? Discuss the more

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