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Companies that dominate an industry...

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Senior Manager
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Joined: 02 Mar 2017
Posts: 271
Location: India
Concentration: Finance, Marketing
Companies that dominate an industry... [#permalink]

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New post 22 Apr 2017, 00:59
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A
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D
E

Difficulty:

  95% (hard)

Question Stats:

28% (02:06) correct 72% (02:43) wrong based on 119 sessions

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Companies that dominate an industry usually do so
by developing a competitive advantage, often control
of a unique resource or a superior technology, that
allows them to manufacture products at a lower cost
than their competitors can. Nondominant companies
that seek to increase their share of the market
generally must endure drastically lower profit margins
as they win customers away from the dominant
companies by matching their prices. Companies that
increase their market share in this way and do not
change their disadvantage in production costs relative
to those of the dominant companies will, therefore,
eventually lose their recently won market share as
prices return to normal levels.

Which of the following is an assumption upon which
the conclusion of the argument depends?

Few companies lacking competitive advantages
in costs of production that have
increased their market share will sustain
price margins lower than those of firms with
production cost advantages.

Dominant companies generally cannot maintain
their competitive advantage over long
periods of time unless they acquire additional
unique resources or develop improved
technology.

Nondominant companies can improve their
competitive positions by developing unique
resources or technological innovations
similar to those of dominant companies.

A dominant company with a competitive
advantage generally will not lower its prices
to undercut those of a firm that lacks competitive
advantages in production costs.

Acquiring unique resources or developing
superior technology is a difficult undertaking
that requires substantial investment on the
part of a company seeking to gain a competitive
advantage in production costs.
[Reveal] Spoiler: OA

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Re: Companies that dominate an industry... [#permalink]

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New post 24 Apr 2017, 02:42
Why is it not E? whats the explanation for A?
Senior Manager
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Joined: 02 Mar 2017
Posts: 271
Location: India
Concentration: Finance, Marketing
Re: Companies that dominate an industry... [#permalink]

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New post 24 Apr 2017, 03:08
Ashy Boy wrote:
Why is it not E? whats the explanation for A?



The conclusion is that companies without a competitive advantage will not
be able to retain an increase in market share

They will lose the market share
as they raise their prices back to original levels.

What if they decide not to increase the prices.... The author assumes that they
aren’t willing to continue with lower profit margins...
A dismisses this case -----Answer


Companies that can develop competitive advantages are irrelevant to
the conclusion....Hence E is wrong..
Hope its clear
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Status: 800 and more!
Joined: 11 Apr 2017
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GMAT 1: 620 Q47 V29
GPA: 3.75
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Re: Companies that dominate an industry... [#permalink]

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New post 24 Apr 2017, 03:58
VyshakhR1995 wrote:
Ashy Boy wrote:
Why is it not E? whats the explanation for A?



The conclusion is that companies without a competitive advantage will not
be able to retain an increase in market share

They will lose the market share
as they raise their prices back to original levels.

What if they decide not to increase the prices.... The author assumes that they
aren’t willing to continue with lower profit margins...
A dismisses this case -----Answer


Companies that can develop competitive advantages are irrelevant to
the conclusion....Hence E is wrong..
Hope its clear

yes thank you so much. I thought in some other way. I get it now the point is clear. Thanks once again.
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Re: Companies that dominate an industry... [#permalink]

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New post 25 Apr 2017, 02:09
VyshakhR1995 wrote:
Ashy Boy wrote:
Why is it not E? whats the explanation for A?



The conclusion is that companies without a competitive advantage will not
be able to retain an increase in market share

They will lose the market share
as they raise their prices back to original levels.

What if they decide not to increase the prices.... The author assumes that they
aren’t willing to continue with lower profit margins...
A dismisses this case -----Answer


Companies that can develop competitive advantages are irrelevant to
the conclusion....Hence E is wrong..
Hope its clear



Hi
Thank you Vyshakh. Above explanation was helpful but as per my understanding in order for the conclusion to hold true , shouldn't the assumption state otherwise . See below.

"Few companies lacking competitive advantages
in costs of production that have
increased their market share will NOT sustain
price margins lower than those of firms with
production cost advantages.

Thanks
Senior Manager
Senior Manager
User avatar
G
Joined: 02 Mar 2017
Posts: 271
Location: India
Concentration: Finance, Marketing
Re: Companies that dominate an industry... [#permalink]

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New post 25 Apr 2017, 02:49
BS55 wrote:
VyshakhR1995 wrote:
Ashy Boy wrote:
Why is it not E? whats the explanation for A?



The conclusion is that companies without a competitive advantage will not
be able to retain an increase in market share

They will lose the market share
as they raise their prices back to original levels.

What if they decide not to increase the prices.... The author assumes that they
aren’t willing to continue with lower profit margins...
A dismisses this case -----Answer


Companies that can develop competitive advantages are irrelevant to
the conclusion....Hence E is wrong..
Hope its clear



Hi
Thank you Vyshakh. Above explanation was helpful but as per my understanding in order for the conclusion to hold true , shouldn't the assumption state otherwise . See below.

"Few companies lacking competitive advantages
in costs of production that have
increased their market share will NOT sustain
price margins lower than those of firms with
production cost advantages.

Thanks



Hey BS55,

For the argument to hold MOST companies should NOT sustain price margins.
If they Do sustain price margin-----Price will not raise back to original level
A states only few companies sustain---->MOST companies will not
Hope its clear
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Joined: 20 Jan 2016
Posts: 25
GMAT 1: 600 Q49 V23
GMAT 2: 660 Q50 V30
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Re: Companies that dominate an industry... [#permalink]

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New post 25 Apr 2017, 03:27
Hey BS55,

For the argument to hold MOST companies should NOT sustain price margins.
If they Do sustain price margin-----Price will not raise back to original level
A states only few companies sustain---->MOST companies will not
Hope its clear[/quote]


This is what i was missing.Thanks Vyshakh

Regards
Re: Companies that dominate an industry...   [#permalink] 25 Apr 2017, 03:27
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