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Unformatted text preview: 1 Lamoiyan Corporation Business Policy (MGBU 4441) Prof. Benjamin Cole WTP vs. Cost (cont.) Cost WTP Cost P Increase WTP More Profits Quantity (?) Cost P Increases WTP Lamoiyan “Normal” Differentiator Entry: 50% Differential Current: 30% Differential No Top Limit to WTP Slowly increase WTP Won’t exceed MNEs until ready P P 2 WTP vs. Cost (cont.) Cost Cost Lamoiyan Colgate-Palmolive Entry: 50% Differential Colgate Happee Cost Lamoiyan Kutitap Cost Zest-O Corp. Beam Later: 30% Differential Zesto doing same thing to Lamoiyan that Lamoiyan did to Colgate Had been leaving money on the table with original 50% price differential Zesto tries to undercut price of Happee Lamoiyan introduces “blocking brand” to ensure that Zesto never sells sufficient Q to offset costs of production of Beam Two Major Strategies (for all firms) Cost Leadership No Real Economies of Scale (making more of same) Economies of Scale when: AC(x+1) < AC(x) Minimum Efficient Scale when: AC(x+1) – AC(x) ≈ 0 Possible Economies of Scope (delivering more of different types)...
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- Spring '10
- Economics of production, minimum efficient scale, Lamoiyan