Beauregard Case

Beauregard wanted to strength the company's working capital position so as to ensure the availability of adequate funds for a recently approved long-term plant modernization and expansion program. So for this aim, Beauregard needed to improve its profit by increase its price. Form the Appendix 1, we can see when the price of Triaxx-30 is $3, the profit was negative in 1989, which was $-156,210. But when Beauregard raises its price to be $4, the profit in 1990 was positive, $ 12,083. This can help Beauregard achieve its goal of improve its financial situation.

2. Second reason is the clients.

Triaxx-30 was used for special outdoor applications. The total market remained stable for the last three years at about 225,000, although Beauregard and its competitor change their prices some times. The customers just flowed between these two competitors, but they won't leave from this industry. The whole market size kept same and won't change. So if Beauregard and its competitor C&P use reasonable price in this industry, even if they both increased their price, the total customer pool would not be affected greatly. They needed to use this product, and we didn't see from the case that there were other substitutes for this product. So for the whole industry, customer's price elasticity was low. The market size would keep same with the higher price in industry.

3. Third reason is the competitor.

There are only two companies, so this industry was oligopoly. There were no lots of competitors which could cause serious price war in this industry. So Beauregard could be a bit easier to forecast this market with competitor's response for Beauregard's price increase. From the past, Beauregard and its competitor, C&P, kept the cooperation relationship all along. They use the same price for their clients although C&P had a smaller market share compared with Beauregard. No one used competitive pricing strategy to steal the market by lowering their price. So there is no reason to worry that C&P will lower its price when Beauregard increase price. Therefore, after Beauregard increase price, C&P may have two responses. First, keeping the price unchanged, $3. Beauregard will lose some clients but get the good profit. And C&P will increase its clients and its market share. This will be new equilibrium, a win-win situation for both of them. Another response is that C&P increase its price to be $4. It's possible because C&P has a intense financial situation. It increased its price once in the past, but lower back at last. So in this situation, both Beauregard and C&P will keep the market share as they both price $3 in this market. But they will both get more revenue and profit.

Now, if Beauregard lowers back its price to be $3, probably C&P will lower its price to be $2. The result would be these two