Managerial Economics

Whether it is important for a company to achieve cost leadership is dependent on the generic strategy that the company has chosen to pursue. The two basic forms of generic strategy are differentiated and cost leadership. Companies pursuing a differentiated strategy do not need to pursue cost leadership. They seek to maximize profits by building brand power to the point where they can charge premium prices for their goods. Thus, the strategy is fundamentally different from cost leadership, and is perfectly valid. Many firms have successfully pursued a differentiated strategy, and indeed, the differentiated strategy is a hallmark of firms in monopolistic competition. Each seeks to achieve a measure of differentiation that will attract customers. There are many different ways to achieve this differentiation, and cost leadership is just one among them.

For firms that wish to pursue cost leadership as a means of winning market share in...
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