"Davis Technologies, a computer-chip maker, could solve its problem of declining sales by dropping its prices. This would make Davis better able to compete in the highly competitive computer chip market. The sales of chips would increase and this would substantially boost Davis' market share."
How would you rate the accuracy of the above statement? Support your position with reasons and examples.
Computer chip manufacturing is a highly competitive marketplace
, in which success depends on a variety of factors, both environment and institutional. In the preceding statement, the authors concludes that in the case of Davis Technologies, market share may be increased through higher levels of sales of cheaper computer chips. This argument is invariably flawed due to the lack of information included that may substantiate the premise and assumptions of the argument that lead to the conclusion.
The primary issue with the author's argument is based on the premise that a drop in price would increase sales. Without additional information about the competitive environment, such as the price points of other competitors, the quality levels, and the market demand for cheaper chips, the conclusion is flawed. Moreover, the argument fails to take into account the reason behind the falling sales. For example, if the Davis chip is already seen as inferior by the market, lowering the prices will signal a confirmation of the low quality perception and will not lead to increased sales. Without knowing the cause of the decline in sales, the argument that a price drop will increase sales is flawed.
Secondarily, the author's conclusion that Davis' market share would substantially increase based on an increase in the sale of chips is weakened by the ambiguous language and the leap of the conclusion. Without being more specific about the level of price decrease versus the increase of sales, the argument does not necessarily lead to the conclusion. Specifically, if the amount of price decrease that Davis must incur in order to increase the sales of chips results in the same profit as before the price drop, the market share would remain the same. Without more specific language, the boost of market share cannot be concluded based on the information presented.
However, the argument has some points that may lead to the conclusion if strengthened considerably. Additional information about the competitive environment that connects the Davis sales numbers and pricing to a conclusion about the market share would strengthen the argument. For example, if Davis' was seen by customers as a high quality, but overpriced chip maker, a lower priced chip would indeed increase market share. In addition, information about market demand would greatly strengthen the argument. If there was demand for a lower quality cheaper chip with fewer competitors than the level Davis is currently competing, it may be concluded that a decrease in price would lead to an increase in market share.
In sum, the author's argument presents serious flaws in its assumptions and the premise that leads to the conclusion. However, with additional information about the competitive market and the customer demand can greatly strengthen the argument.