The sales manager and administer have to determine the price for a textile that foregone marked market share because of the current rise in prices. Information regarding production costs and about the pricing pattern of Beauregard and its primary rival is given for assessment. The case allows the chance to work on contribution analysis, taking into account fixed and variable costs as given in a general cost report. Also quizzes the students' capability to identify the necessity to look at the situation from the rival's perspective. In the end, it puts forward the prisoner's dilemma for the two companies where each would want to have a price that would be undesirable for the other so that the prices will tend to typically fluctuate or be stable at a less optimal price level for both the companies. The class can conclude with students putting forward an effort to come up with a pricing design that would suit both companies optimally.
Quarterly Prices and Sales Volumes for T-30 Fabric, 1988-1990
Beauregard’s Estimated Cost per Yard of Triaxx-30 at Various Volumes of Production
Contribution Margin Calculations
Case 1Beauregard Textile Company drops its price to $3 for 4th Quarter
Case 2Beauregard Textile Company Keeps its price to $4 for 4th Quarter
Case 3Beauregard Textile Company Keeps its price to $4 for 4th Quarter while Calhoun and Pritchard raises its prices to $4
Case 4Beauregard Textile Company Keeps its price to $3 for 4th Quarter while Calhoun and Pritchard raises its prices to $4
What are the financial results for Beauregard Textile Company that Beal and Calloway should be looking at with respect to the present pricing arrangement?
What is the contribution per yard, and what is the total contribution, at the $4 price? How would the numbers look if Beauregard Textile dropped its price to $3.00?( Note that you must determine the relevant costs that should be included in computing the contribution per yard.)
Calhoun and Pritchard presumably is showing a loss at $3.00. Why then is it not raising its price? (Assume similar costs).
What happens to Calhoun and Pritchard if Beauregard Textile drops its price to $3.00?
What price should Beauregard charge? Why?
How might Beauregard Textile persuade Calhoun and Pritchard to rise its price WITHOUT violating the antitrust laws which prohibit collusion on pricing between competitors?