Which of the following is a true of a firm pursuing an experience curve pricing strategy?
A) Moving down the experience curve, the firm will be making substantial profits and have a cost advantage over its less-aggressive competitors.
B) Vigorous price wars need to be launched in a market in an attempt to gain market dominance.
C) Aggressive pricing in one market may elicit a response from rivals in another market.
D) By using profits from one market, competitors can be driven out from another market by considerably lowering prices in that market.
E) When competitors are numerous, consumers' bargaining power is weaker and price is less important as a competitive weapon.

Question

Quizplus · Accepted Answer

Pursuing an experience curve pricing strategy involves continuously lowering the cost of production as the firm gains more experience in producing a particular product or service. This allows the firm to sell its products at a lower price than its competitors while still making profits. As the firm moves down the experience curve, it gains a cost advantage over its less-aggressive competitors and will be making substantial profits.

Option B is incorrect because a vigorous price war is not necessary to pursue an experience curve pricing strategy.

Option C is incorrect because aggressive pricing in one market may elicit a response from rivals in the same market, but not necessarily in another market.

Option D is incorrect because using profits from one market to drive competitors out from another market by lowering prices considerably can cause rivals to respond by also lowering their prices, leading to a price war that can hurt everyone's profits.

Option E is incorrect because when competitors are numerous, consumers' bargaining power can be stronger, and price can actually become more important as a competitive weapon.

Which of the Following Is a True of a Firm