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Background Note
| HBS Case Collection
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2009
(Revised from original 2007 version)
Analyzing Relative Costs
by
Hanna Halaburda and Jan W. Rivkin
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Abstract
Introduces students to the technique of relative cost analysis, a core technique of strategists. Among the intricate quantitative analyses that strategists undertake, relative cost analysis may be the most common. The goal of a relative cost analysis is simply to estimate how a company's costs compare to a rival's. Companies examine relative costs for a host of reasons: to anticipate how a rival is likely to react to a price change; to predict how a price war may evolve; to test whether a cost advantage it believes it has is real and sustainable; to decide how low a company must bid in order to win a competitive contract from a rival; to identify opportunities for internal cost reduction; to estimate, in the context of an acquisition, how much the costs of an acquired company might be reduced and what a reasonable price might be for the company; and so forth.
Keywords: Cost;
Management Analysis, Tools, and Techniques;
Mathematical Methods;
Competition;
Competitive Advantage;
Citation:
Halaburda, Hanna, and Jan W. Rivkin. "Analyzing Relative Costs." Harvard Business School Background Note 708-462, January 2009. (Revised from original October 2007 version.)