The Relevant Market

Product Market 



Geographical Market 


Structure, Conduct & Performance

Basic conditions:


Market structure: Oligopoly 


Firm's conduct: Reputation & limit pricing


Market's performance: accommodation 


Structure, Conduct & Performance

Basic conditions:


Market structure: Oligopoly


Firm's conduct: Reputation & limit pricing


Market's performance: Accommodation 


Strategic entry barriers :


- Limit pricing


- Predatory pricing


- Capacity expansion


- Advertising

  Research & Development

Asymmetry requirement

- “Slashing prices” strategy


- Relationships with customers and suppliers


- Support of local authorities



Problem on the employment side


Fondeville Group is not considered as a real new entrant


Fondeville Group’s profits are more likely to exceed its sunk costs




Limit Pricing

Strategy where a firm sets the higher Price posible, above its average costs, without enabling potential entrants to enter the market


Fondeville is a potential entrant, which means that its competitors are likely to adopt this strategy


Limit Pricing

Without a strong reputation, this strategy will not quite work, since there is no apparent reason for clients to choose Fondeville over another that does have one





Predatory Pricing

Strategy where a firm sets a price below its average cost in order to make a loss in the short run, but force rivals out of the industry


This strategy will motivate clients to choose Fondeville over its competitors because of the lower Price


Predatory Pricing

With enough time and hard work, Fondeville will develop a strong reputation which will allow it to adopt a different pricing strategy, such as Limit Pricing





Most Convenient Pricing Strategy

It is never certain how big the initial will be, and Fondeville is aware that this uncertainty represents a threat and may ruin its plans.


Usually a firm does not know what the average cost will be either, but in this case, Fondeville knows that it will be lower tan the one they already have by working from a distant place

Most Convenient Pricing Strategy

The most suitable and convenient pricing strategy that Fondevile should adopt is the Predatory Pricing, and maybe once they have settled in and built up a solid reputation, then Fondeville could decide to adopt the Limit Pricing Strategy




Case study: Analysis of the cost generated

From implantation

Fixed Costs

Case study: Analysis of the cost generated

From distance

Fixed and Variable Costs

Implentation


Physical Agency

Billboard advertising


By distance


Transportation costs

+30% to 35% average cost

Save recruitment costs

Evolution of costs



No economy of scale



Costs are proportional to the number of contracts


  • There are no fixed costs
  • The team is reliable

Long-run Issues 

The team is tired of moving

Cannot benefit from economy of scale

Competitive disadvantage

The management question

Information Issues


vs 


Reliable employee benefits 

Results if running Marseille from distance

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Public - 10/4/16, 9:20 PM