Beauregard Textile Company

Eugenio J. Miravete

Relevant Market Infomation

Duopoly in the market of Triaxx-30:
Beauregard Textile Company (BTC). Calhoun & Pritchard Inc. (CPI).

Pricing is final for each quarter (commitment) and normally BTC announce her price first. BTC recently raised the price of T-30 from $3 to $4 to align this markup to other fabrics in her product line. CPI held his price at $3. CPI and BTC have similar costs. CPI is in a tight financial situation. Products are similar but not identical.
BTC may have a location advantage.
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Market Description

Market remained quite stable around 225,000 yards. There is evidence that consumers switch suppliers to favor lower price.
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Cost Analysis

What are the relevant cost items to consider in pricing T-30?

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Cost Analysis
Variable costs:
Direct Labor. Material. Material Spoilage. Direct Department Expense.

Exclude expenses not related to the scale of production of T-30, or that have been allocated following arbitrary accounting rules to cover costs that are common to the production of other items:
General Overhead
Plant accounting, insurance, security, plant managers salary.

Selling and Administration.

Finnacial accounting, personnel, officers compensation, as well as wages of sales people.

Indirect Department Expense.

Depreciation, supervision.

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Demand Analysis

This is the present pricing arrangement where BTC charges $4.00 and CPI charges $3.00 per yard of T-30, respectively.

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Demand Analysis

What would happen if BTC drops her price to $3.00 to match CPI?
Is pricing at $3.00 sustainable in the long run when total cost per yard amount to $3.31?

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Demand Analysis

Can BTC price at $4.00 to signal CPI of the substantial returns to pricing high?
Demand goes down by 20% if both firms price at $4.00. How do you expect CPI to react to a BTC price of $4.00?
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Competitive Analysis

Therefore CPI makes more money by undercutting BTCs price. Would you expect CPI raising her price if BTC lower his to $3.00?
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Competitive Analysis

Therefore CPI also makes more money by matching BTCs low price.
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Gaming Analysis

In the current situation CPI makes almost the maximum profits possible for him while BTC makes her minimum. It is in the best interest of both firms to price at $3.00.
Obviously they could make higher profits if they simultaneously charge $4.00, but collusion is illegal and these firms do set prices independently.
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