BUSSPP 0200 1st Edition Lecture 14 Outline of Last Lecture I Price Pricing II Strategies Outline of Current Lecture I Legal Considerations II Objectives Strategies III Cost Basis Current Lecture I Legal Considerations A Story 1 tells us a story about two people meeting in secret to change prices ILLEGAL Story 2 when one person changes prices and another follows that is considered LEGAL B Collusion to fix prices story 1 is illegal and a FEDERAL OFFENSE 1 Explicit collusion flat out conspiring to raise prices in a joint and organized manner 2 Implicit collusion looks like there has been a collaboration between two companies but have not a Signal when any party puts information into the market place and has been perceived by other players overall puts information into market and have people adjust accordingly i Example is raising prices and others following along ii Adjusting your behavior accordingly iii One party buyer seller third puts information into the marketplace b If the market is expecting information and doesn t get it i This is the absence of expected information ii Ex your mom knows you had a test today and when you don t call after it she will assume the worst Takeaways Pricing is one of the things a company has control over but also has significant legal constraints on how to spread information II Objectives Strategies part 2 A Multiples combinations of objectives These notes represent a detailed interpretation of the professor s lecture GradeBuddy is best used as a supplement to your own notes not as a substitute B combining strategies 1 Competition based 2 Types of prices a Premium prices Nordstrom s b Middle price middle of the road Macy s c Discount price Wal Mart 3 a Back in the day used to be many middle of the road stores b Today there is a growth in discount and premium stores and a decrease in middle of the road stores 4 Stores try to stay in their price range for competitors a i e Wal mart will crush any competition so there are many stores between macy s and WM i Target kohls JCP etc b Below WM are the dollar stores 5 Strategic decisions where all of these stores decided to be located in terms of competition and pricing III Cost basis A Types 1 Multiple break even point B Develop 1 Algebraically 2 Geometrically 3 Algebra Profit revenue expenses Profit P Q variable fixed Total variable is equal to variable costs quantity fixed and P V is equal to contribution margin Profit PQ VQ F At break even profit 0 0 PQ VQ F 0 Q P V F 0 CMQ F F CMQ F P V Q fixed costs are always positive Unless CM is positive we can never break even Necessary conditions 1 P V 0 price must exceed variable costs 2 Q of break even must be less than or equal to capacity 3 If break even price is outside the range fo what customers typically pay the price of Break even must be gettable
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