Chapter 3: Problem 104

Certain large corporations show slightly lower rates of profit than their next largest competitors. What are some alter native goals that would explain a corporation's opting for greater size over additional profits?

Short Answer

Expert verified

In summary, some alternative goals that would explain a corporation's decision to prioritize size over profits include capturing a larger market share, gaining a competitive advantage, and achieving economies of scale. By doing so, these corporations aim to strengthen their long-term success and stability in the market, leveraging increased pricing power, brand recognition, and cost savings to ultimately generate profits.

Step by step solution

Identify potential alternative goals for corporations

First, let's list some possible alternative goals that could explain a corporation's decision to prioritize size over profits. This can include factors such as market share, competitive advantage, and economies of scale.

Discuss market share as an alternative goal

One possible reason a corporation would choose to prioritize size over profits is to capture a larger market share. By increasing their size, a corporation can broaden its customer base and retain a dominant position within the market. This could potentially provide long-term benefits such as increased pricing power, stronger brand recognition, and more loyal customers.

Discuss competitive advantage as an alternative goal

Another possible reason for valuing size over profits is to gain a competitive advantage. A larger corporation may have better access to resources, such as skilled labor and capital, which can allow them to innovate and develop new products and services more effectively. Furthermore, an even more significant corporation may have an advantage when it comes to acquiring smaller competitors or forming strategic partnerships that can further strengthen their position within the market.

Discuss economies of scale as an alternative goal

The third alternative goal for a corporation to prioritize size over profits is to achieve economies of scale. As a corporation grows, it can often achieve lower costs per unit due to increased production levels, more efficient use of resources, and better negotiating power with suppliers. These cost savings can provide the corporation with a competitive advantage in the market and allow them to generate profits in the long run by undercutting their competitors on price.

Summarize the alternative goals

In summary, there are several alternative goals that could explain why a large corporation would opt for greater size over additional profits, including capturing a larger market share, gaining a competitive advantage, and achieving economies of scale. While maximizing profits might be the primary goal for some corporations, achieving these alternative goals can offer strategic advantages that contribute to their long-term success and stability.