Illustration external benets and costs of pricing

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Unformatted text preview: a “low” sticker price, pl. M&S 452 — Strat and Org c 2008 Scott Schaefer – Suppose two divisions of the same firm produce products that are close substitutes. • Illustration: External Benefits and Costs of Pricing Decisions External Benefits and Costs d d d ‚ d External cost of price reduction. Does not factor into Chevy decision at all. d d 24 pl ph d T P d d d d d d d d d d d d d d d Demand for Beer d d Q Q Demand for Pretzels E E T P • Suppose two divisions of the same firm produce products that are complements. M&S 452 — Strat and Org c 2008 Scott Schaefer • External costs mean too much of the activity. Chevy’s price will be too low. Divisional cost of price reduction Affects Chevy decision through comparison to divisional benefit. © Total cost to firm of Chevy’s price reduction • When Chevy reduces its price, what are the costs to the firm? • Will Chevy make the right decision? Interdivisional Trade 26 – When one of a firm’s divisions makes an input that is used by anoth...
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This document was uploaded on 02/20/2014.

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