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The possibility of working closely with the Vanda-Laye Corporation in the development of the company’s business and assistance in planning its economic strategies opens up quite good prospects for the consulting company in question. Pricing and output decisions based on the monopolist principle can have a significant effect on both the corporation and the subsidiary organization. The established regime is associated with an increase in the cost of services, and its consequences will be significant. The purpose of this research is to analyze the practice of a monopolist and the rationale for its implementation.
Effect of the Monopolist Strategy
In the modern economic world, most markets have signs of both competition and monopolies. For instance, as Tavassoli and Karlsson (2015) note, there is often an insignificant opportunity for an individual firm to control price. Manufacturers offer similar but not identical products that differ in quality, design, prestige, the conditions of after-sales service, geographical location in relation to customers, the intensity of advertising, and other features (Tavassoli & Karlsson, 2015).
This type of competition is monopolistic, and this model is the most common and is particularly typical for the service sector. A monopolist is a participant in the business market who controls the entire production of a single type of goods. Regarding the consulting firm under consideration, the market for its work may be classified as monopolistic in terms of structure. As Tavassoli and Karlsson (2015) note, rivalry in this area can be viewed as an irreversible and natural process. This step implies transiting of relations among the Vanda-Laye Corporation and the firm to a qualitatively new and higher level of interaction in conditions of significant services differentiation. This, in turn, helps to reduce the negative impact of monopolization.
Effect of Antitrust Policies
The introduction of antitrust strategies in the process of regulating pricing and output decisions can be unjustified. According to Shastitko, Ménard, and Pavlova (2018), such a course of work may cause “transaction costs that have a negative impact on welfare and may even challenge the very existence of otherwise beneficial transactions” (p. 178).
The current pricing policy can be justified by the absence of fixed costs, which is a significant bonus in the business activity, and comprehensive control over the movement of financial flows, which is ensured by monopolization. Thus, the involvement of third-party strategies is fraught with the loss of mutually beneficial cooperation. Such an outcome is unacceptable in terms of competition among consulting companies and the services that they provide; therefore, no antitrust policies should be implemented.
Implications of Price Increase
In case of a price increase for services provided to the Vanda-Laye Corporation, this company will not incur significant losses. At the same time, it will be able to receive relevant and useful recommendations, and the profit realized by the consulting firm will ensure its growth and promotion in a competitive market. As Shastitko et al. (2018) argue, an increase in the cost of services is directly proportional to the outcomes of mutually beneficial cooperation and the market competitive environment.
Based on the previous decisions of the corporation in question, its management intends to take all possible steps to increase the interest of consumers and realize maximum production. Compared to the fee previously charged by the Vanda-Laye Corporation earlier, the current pricing policy will change and will provide for higher payments. However, a new regime is due to the strengthening of the positions of both market members. Therefore, the increase in the cost of consulting services will have positive results for both parties.
The practice of a monopolist is the rational principle of regulating pricing policies and organizing business partnerships between the Vanda-Laye Corporation and the consulting firm. The effect of such a regime may allow achieving mutually beneficial cooperation in the conditions of market competition. The introduction of antitrust practices is undesirable since favorable financial conditions may be violated. The impact of price increase in the consulting firm’s services will not be significant for the Vanda-Laye Corporation.
Shastitko, A., Ménard, C., & Pavlova, N. (2018). The curse of antitrust facing bilateral monopoly: Is regulation hopeless? Russian Journal of Economics, 4(2), 175-196. Web.
Tavassoli, S., & Karlsson, C. (2015). Persistence of various types of innovation analyzed and explained. Research Policy, 44(10), 1887-1901. Web.