Case_In_Point_7th_Edition_Page001_183_2

If you lower prices and volume rises, and then you are pushed beyond full capacity, your costs will shoot
up as your employees work overtime, and consequently your profits will suffer.
Prices are stable only when three conditions are met:*
The growth rate for all competitors is approximately the same.
The prices are paralleling costs.
The prices of all competitors are roughly of equal value.
The volume (the amount that you produce) and the costs are easier to change than the industry price
levels, unless all parties change their prices together (e.g., airline tickets or gas prices).
The perfect strategy for the high-cost producer is one that convinces competitors that market shares
cannot be shifted, except over long periods of time. Therefore, the highest practical industry prices are
to everyone’s advantage** — meaning that price wars are detrimental and everyone will profit more by
keeping prices high.
G eneral tips
How the Internet affects the company should be in the back of your mind in every case.
How the economy affects the company should be in the back of your mind in every case.
How the competition — both internal to the industry and external (substitutions) — affects the
company should be in the back of your mind in every case.