Your consulting firm just granted an exclusive contract for Vanda Laye Corporate

Question

Your consulting firm just granted an exclusive contract for Vanda Laye Corporate. You now must decide your pricing policy. The firm will encounter no fixed costs and all revenue is after taxes. As your firm has been granted an exclusive contract your pricing and output decision will be those of a monopolist. Analyze what a monopoly is and the effects it could have on the consulting firm. Evaluate if any anti trust policies need to be put into place. How will your pricing policy be justified? Explain the implication of increasing the price you'll charge Vanda Laye versus what is was previously charged.

Explanation / Answer

Monopoly is basically referring to an entity that is a single seller or provider of a product or service for the market as a whole or a particular company. The consulting firm has exclusive contract on the pricing and output decision and hence has the tenets of being a monopoly player. There is no competition for the firm and so all pricing policies and decision making remain exclusive to the firm.

The effects of monopoly are:

Antitrust laws are the laws, rules and regulations developed by Central Government to product the customers from getting exploited or falling into trap of predatory business practices. The aim of these laws is to promote fair competition in the market. The role of anti-trust laws in a monopoly market is to safeguard the rights of the consumers. The anti-trust laws keep a watch on the monopolistic company to see if their pricing policies are taking undue advantage of the limitations of the consumers. So, in this case as well, anti-trust laws like the Sherman Act and FTC Act must be put to play.

In a monopoly market, the producer is the price maker for the product or the service offered. The pricing policy of a monopolist company is set with the objective of profit maximization. To obtain maximum profit, the below 2 conditions must be met:

Monopolist sets the price of his offerings based on market consideration and with the objective of profit maximization in mind.

The implications of increasing the price that was previously charged from Vanda Laye Corporate must be backed by the additional service justification. the consulting firm must justify the additional services and the benefits that it will render to the company and how they are better than the previous company.

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