Industrial cost curve
The industrial cost curve is an instrument of strategic corporate planning and shows the unit costs of all providers in an industry in relation to the capacities of the individual providers. It is part of the cost-related representation of the competitive situation .
The industrial cost curve is only suitable for homogeneous goods and is based on microeconomic assumptions. A basic prerequisite for their application is an almost uniform market price . Thus, no room for maneuver in pricing policy can be included. In addition, the industrial cost curve serves as an indicator for capacity decisions by linking the capacity supply and demand forecasts and deriving cost and price developments from them. In addition, you can use cost structure analyzes to show potential for improvement in the cost types . By creating competitive scenarios, it is possible to analyze cost developments in advance. The industrial cost curve can provide important information about potential unit cost reductions based on the experience curve. It can also provide information on how the competitive situation and the market price can change if the competitors change their capacity and / or their own costs.
requirements
- There is a sufficiently high degree of homogeneity between the goods so that the substitution competition leads to a uniform price.
- In the longer term, alternative courses of action are primarily in the area of capacity variation or influencing unit costs, since pricing policy is not possible.
- Each manufacturer only produces efficiently and realizes a minimum cost combination.
Action
- Creation of a list of all competitors and their capacity, as well as their average cost.
- Estimate the average cost, for example with the help of the experience curve concept or on the basis of the “traditional” cost and performance calculation.
- Order of competitors according to unit costs in ascending order and then cumulation of capacities.
- Graphic representation of the industrial cost curve with cumulative capacity at time t on the x-axis and cost of goods sold on the y-axis.
literature
- Heinz-Georg Baum; Adolf G. Coenenberg ; Thomas Günther: Strategic Controlling, Stuttgart, 2003
- Connenberg / tree; Strategic controlling; Stuttgart, 1987