Firms' Decisions and Strategies Memory Pack II

Firm Strategies Notes

Contents Contents 1 Structure 2 Strategies 4 1. Product Differentiation 4 2. Mergers, Acquisitions and Collusion 9 3. Lowering Prices 13 4. Impact on Society 14 5. Cost Reducing Strategies 16 6. Third Degree Price Discrimination 18 7. Cognitive Biases 19 8. Other Strategies 22 1

Structure Guiding principle: Assume the breadth required is writing multiple strategies unless it contradicts what the question asks of you. Main Type 1: Discuss possible strategies a firm might employ when (cause) . Type 1a: Natural Causes – recession, increase in factor input prices, COVID-19, etc. ● State that firms are profit maximising ● B1: Explain how the cause impacts the market ● B2a: Strategy 1 → Working → Ev1: Limitations/Trade-offs ● B2b: Strategy 2 → Working → Ev2: Limitations/Trade-offs ● Evaluate which strategy is most effective/suitable given the context of the question Type 1b: Market Characteristics – changes in level of competition, type of product sold, etc. ● State that firms are profit maximising ● B1: Elaborate on the market’s characteristics and how the change stated impacts the market ● B2a: Strategy 1 → Working → Ev1: Limitations/Trade-offs ● B2b: Strategy 2 → Working → Ev2: Limitations/Trade-offs ● Evaluate which strategy is most effective/suitable given the context of the question You should select one revenue strategy and one cost strategy. Main Type 2: Discuss whether (strategy) is the best/most effective/most suitable strategy to (effect) ● Link the effect given to a firm objective – Profits, Revenue, Cost, Market Share, Growth ● B1: Strategy 1 → Working → Ev1: Limitations/Trade-offs ● B2: Strategy 2 → Working → Ev 2: Limitations/Trade-offs ● B3: Strategy 3 → Working → Ev 3: Limitations/Trade-offs (IF TIME PERMITS) ● Evaluate which strategy is most effective/suitable given the context of the question 2

Main Type 3: Discuss how (strategy) adopted by (firm) would affect (effect) . Type 3a: Effect on Firms – Profits, Revenue, Cost, (Market Share, Growth) ● State that firms are profit maximising ● B1: Effects on Revenue based on Dd and |PED| changes → Link to Profit → Ev1: Condition for contradiction ● B2: Effects on Cost → Link to Profit → Ev2: Condition for contradiction ● Evaluate whether the effect on revenue outweighs the effect on cost; vice versa Type 3b: Effect on Society/Consumers – Allocative and Productive Efficiency, Variety, Consumer Welfare (Equity) ● B1: Effects on Allocative Efficiency (Society) ● B2: Effects on Income Equity (Society) ● B3: Effects on Productive Efficiency (Firms) ● B4: IE