Low-Cost Producer

AAA

DEFINITION of 'Low-Cost Producer'

A company that can provide goods or services at a low cost. In general, low-cost producers utilize economies of scale in order to execute their strategy of low prices. Consumers that are sensitive to price changes will more likely shop at the stores that offer the lowest prices, if the good or service is relatively homogeneous. Alternatively, low-cost producers could even price the goods or services at the same level as their competitors and maintain a wider margin.

INVESTOPEDIA EXPLAINS 'Low-Cost Producer'

Becoming a low-cost producer requires enough capital to achieve economies of scale large enough to provide a distinct price advantage over competitors. This requirement is one reason why many companies are not able to be low-cost producers. Wal-Mart is likely the best example of a low-cost producer with massive economies of scale.

RELATED TERMS
  1. Large Cap - Big Cap

    A term used by the investment community to refer to companies ...
  2. Net Margin

    The ratio of net profits to revenues for a company or business ...
  3. Core Competency

    A narrowly defined field or task at which a company excels. A ...
  4. Multinational Corporation - MNC

    A corporation that has its facilities and other assets in at ...
  5. Occupational Safety And Health ...

    Law passed in 1970 to encourage safer workplace conditions in ...
  6. Administrative Order On Consent ...

    An agreement between an individual or business and a regulatory ...
Related Articles
  1. Investing Basics

    How To Be A Conservative Investor

    It may not be the most exciting path to take in the investing world, but conservative investing is an extremely safe bet.
  2. Economics

    A Practical Look At Microeconomics

    Learn how individual decision-making turns the gears of our economy.
  3. Active Trading

    Why You Can't Influence Gas Prices

    Don't believe the water-cooler talk. Big oil companies aren't to blame for high prices.
  4. Options & Futures

    Explaining The World Through Macroeconomic Analysis

    From unemployment and inflation to government policy, learn what macroeconomics measures and how it affects everyone.
  5. Retirement

    Investing Books It Pays To Read

    We provide some classic and lesser-known titles to add to your collection.
  6. Economics

    What is a roll-up merger and why does it occur?

    Find out what a roll-up merger is and how it is executed. See why roll-ups might bring added efficiency and competition into a fragmented market.
  7. Economics

    What are the differences between internal and external economies of scale?

    Take a deeper look at the differences between internal and external economies of scale, and learn why internal economies offer more competitive advantage.
  8. Economics

    How does marginal cost of production relate to economies of scale?

    See how marginal cost of production relates to economies of scale, and why every company should be concerned with reducing its marginal costs.
  9. Professionals

    How do companies measure labor supply in human resources planning?

    Find out how and why a company's human resources department would measure labor supply, and what policies would address a shortage or surplus.
  10. Professionals

    Master Limited Partnership (MLP)

    A master limited partnership, also referred to as an MLP, is a publicly traded partnership, where the limited partnership interests are traded much like shares in a corporation.

You May Also Like

Hot Definitions
  1. Prospectus

    A formal legal document, which is required by and filed with the Securities and Exchange Commission, that provides details ...
  2. Treasury Bond - T-Bond

    A marketable, fixed-interest U.S. government debt security with a maturity of more than 10 years. Treasury bonds make interest ...
  3. Weight Of Ice, Snow Or Sleet Insurance

    Financial protection against damage caused to property by winter weather specifically, damage caused if a roof caves in because ...
  4. Weather Insurance

    A type of protection against a financial loss that may be incurred because of rain, snow, storms, wind, fog, undesirable ...
  5. Portfolio Turnover

    A measure of how frequently assets within a fund are bought and sold by the managers. Portfolio turnover is calculated by ...
  6. Commercial Paper

    An unsecured, short-term debt instrument issued by a corporation, typically for the financing of accounts receivable, inventories ...
Trading Center