Cost Leadership Type
Reserve capacity and Excess Capacity

The CL type of player is characterised by economics of capacity. The key point for CL type is to focus on Reserve Capacity . It could be described as “installed capacity” . For example beer producer in Europe design their facilities according to demand in summer even though the demand for beer during winter is lesser. The reserve capacity give sustainable competitive advantage because it allows to increase the production at lesser marginal cost . The reserve capacity could also be described as a condition when marginal cost is decreasing at the increasing rate . Accordingly the excess capacity is a condition when marginal cost is increasing at increasing rate.
Short run cost curve:
C

MES Q
The curve describes the short run cost function . The MES point is the Minimum Efficient Scale , the point when is the production is most cost efficient . If the firm produce on the left from that point it has Excess Capacity .
If the management focuses on reserve capacity it will reach the effect of LMC = 0 (marginal cost is decreasing at the increasing rate) .
The graph bellow presents SAC ( short ran average cost ) curves for multiple sites and LAC ( long run average cost curve . The graphs shows how the utilization of multiple sites can reduce the LAC at the increasing rate. All plants produce at MES point.

C

LAC Q
The situation