Question

In a hypothetical market where all consumers have exactly the same preference (so they have the same indifference curve, same perceived benefit, etc.; alternatively, you may simply think of it as a market with only one consumer), discuss why a firm using product specialization (produces only product A) as a type of focused strategies maybe able to out-compete non-specialized competitors (which produce both A and B). Please develop your discussion in the following order:

1. In your opinion, would product specialization affect firm cost? If so, how?

2. In your opinion, would product specialization affect perceived benefit of the firm's products and services? Again, if so, how?

3. What kind of price the specialized firm may charge to out-compete and be profitable (in short and/or long run), given your discussion on cost and perceived benefit?

Answer 1

1. Product specialisation will increase the cost initially but in the long run it will reduce the average cost and have sn edge over non specialised competitors

2.yes, product specialisation affect perceived benefit of firms's product and Services, because it will create real impacts in the long run the firms can produce the product in more efficient way and save the time in specialising and expanding other things which will create the multiplier impact of specialisation.

3. In the long run specialised firm can charge low price because of its low cost than unspecialized firm, and csn get the whole share of the market. In the short run,both firms have nearly same costs, so they will charge same price and each of the firm will have half the share of market.