BUSSPP 0200 1st Edition Lecture 14 Outline of Last Lecture I. Price & PricingII. Strategies Outline of Current Lecture I. Legal ConsiderationsII. Objectives & Strategies III. Cost Basis Current LectureI.) Legal ConsiderationsA.) Story 1—tells us a story about two people meeting in secret to change prices ILLEGALStory 2—when one person changes prices, and another follows, that is considered LEGALB.) Collusion to fix prices (story 1) is illegal and a FEDERAL OFFENSE1. 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 nota. 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 accordinglyi. Example is raising prices and others following alongii. Adjusting your behavior accordinglyiii. One party (buyer, seller, third) puts information into the marketplaceb. If the market is expecting information and doesn’t get iti. This is the absence of expected informationii. Ex: your mom knows you had a test today and when you don’t call after it she will assume the worstTakeaways:Pricing is one of the things a company has control over, but also has significant legal constraints on how to spread informationII.) Objectives/Strategies part 2A.) Multiples/ combinations of objectivesThese 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 strategies1. Competition based 2. Types of pricesa. Premium prices—Nordstrom’sb. Middle price (middle of the road)—Macy’sc. Discount price—Wal-Mart3.a. Back in the day—used to be many middle of the road storesb. Today, there is a growth in discount and premium stores, and a decrease in middle of the road stores4. 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 WMi. Target, kohls, JCP, etcb. Below WM are the dollar stores5. Strategic decisions, where all of these stores decided to be located in terms of competition and pricingIII.) Cost-basisA.) Types1. Multiple break-even pointB.) Develop1. Algebraically2. Geometrically 3. AlgebraProfit= revenue – expensesProfit= (P*Q)- [variable + fixed]Total variable is equal to (variable costs*quantity)+ fixed and P-V is equal to contribution marginProfit= PQ- VQ- FAt break even profit=00= PQ- VQ –F0= Q(P-V) – F0= CMQ- FF= CMQ fixed costs are always positiveF= (P-V) QUnless CM is positive, we can never break even!!Necessary conditions:1.) (P-V)> 0; price must exceed variable costs2.) Q of break even must be less than or equal to capacity3.) If break even price is outside the range fo what customers typically pay, the price of Break even must be
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