Competition impact on cost

Hi there,

It's very rare for competitors to directly affect your costs. Now, of course a competitor cost-cutting would lead to you needing to cut your costs. Equally, a competitor making large capex expenditures (more R&D, buying more assets like a new fleet of planes, etc.) will force you to do the same to stay competitve. However, this is not directly impacting your current costs.

Now, that said, there is such a thing as an "Amazon effect" (when Amazon sets up in a certain area, wages outside of Amazon itself go up). Additionally, a big competitor buying up raw materials etc. may drive your costs up as well.

However, this is all economic theory and really shouldn't show up in a case (it's possible, but highly unlikely)

Hi there,

As mentioned by Ian, competitors usually affect revenues but may affect costs as well. Some possible ways are:

1. Steal a key supplier forcing you to go for a more expensive one
2. Increase the minimum quality expected in the market (eg free delivery) thus obliging you to improve your quality as well
3. Lobby with a regulator to increase the requirements for operating the service thus obliging you to adapt

Best,

Francesco

The impact on costs will be due to your response or reaction to competitors actions. Ian and Francesco have outlined what the competitors can do which could leave you no choice but to respond. This could mean additional costs of various types. 

Hi, 

in situations of low-capacity row material or of few large suppliers competitors can actually impact your costs. However, it is more a macro-economical technicality, I've never seen it applied in a case interview 

Best,
Antonello

Fully agree with what Francesco said: Another one for that list is talent: If competitors pay high sign-on bonuses for MBA graduates or target your key employees with head hunters, that drives up your personnel and recruiting costs.