FECON 4.23
Terms
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- Second degree price discrimination
- is selling different blocks of units to the same consumer at different prices. EX airlines; passenger is Jewish and wants a particular seat with particular food of Kosher which Kosher is at a higher price.
- fourth degree price discrimination
- is selling to different consumers at the same price but cost of providing the product to different consumers are different EX Getting a silver wedding cup set at a price of 34 dollars one customer might purchase it as is though another customer might want to get the married couples name on eat cup which the price would go up to 46 dollars.
- peak load pricing
- occurs when firms discriminate consumers by selling to them at different prices at different time for the same quality product. EX Jewlery stores selling mothers day rings for 499.00 and selling them at 599.00 two days after mothers day.
- dominant firm price leadership model
- can explain coexistence of a low cost large firm with many high cost fringe firms EX the dominant firm leaves room for the competitive fringe (and therefore profit maximizes according to the “residual†demand curve. Since the fringe of firms behaves like perfect competitors, the sum of their marginal cost curves is essentially their supply curve. It represents the amount that these firms together will want to supply at any possible price.
- transfer pricing
- is the pricing of an intermediate good sold from one division of a firm to another division of the firm EX GM has an upstream divsion like its engine plan which transfers its intermediate good to the down stream division of the car assembly plant to produce the final good. fact: from the managerial point of view transfer price should be set to the competitive market price of the intermediate good if a competitive market for the product exists or to the marginal cost of producing the intermediate good by the firm dso as to clear the interanl market for the intermediat food if a competitive market for the product foes not exist.
- downsizing
- reengineering refers to divesting unrelated businesses to focus on the core business. Since the early 1990s downsizing is common business policy. Downsizing menas job cutting especially middle managemetn jobs partly due to technology change. However majority of firms that went downsizing enjoyed an initial drop in accounting cost but in six months to a year accounting cost went up. The explanation is that work fromthe dismissed employees are piled up on the remaining employees causing lower productivity and decline in morale. EX Lets say that the automotive industry downsized its cars for improved fuel economy.
- Divestiture
- means selling a segment of firm to a third party EX In a tactic to pressure South Africa to end apartheid, during the 1980s many Americans and Europeans urged divestiture on corporations doing business in South Africa.
- spin off
- means distributing on a pro rata basis all the shares a firm owns in a subsidiary to its shakeholders EX tyco international spin off to three distinct companies
- equity carve out
- means distributing on a pro rata basis some of the shares a firm owns in a subsidairy to its shareholders while the rest of the shares are sold to the genreal public to raise cash to the parent firm EX Altria equity carve out Kraft Food.
- Split off
- means some parent firm shareholders recieve the subsidiaries shares in return for relinquishing their parent firm shares. EX process of reorganizing a corporate structure whereby the capital stock of a division or subsidiary of a corporation or of a newly affiliated company is transferred to the stockholders of the parent corporation in exchange for part of the stock of the latter.
- supply chain management
- ensures that each transaction in the process of producing a product from raw materials to the final product is efficient. It requires the exchange of technical and managerial knowledge between upstream and downstream firms. It may also require coordination to achieve just in time inventory control. Since 1990s three successful cases standout in the application of the concept EX Dell, Baxter, and Proctor and Gamble.
- strategic alliance
- refers to two or more firms that share common interest in expanding tinto new products servieces and or markets to avoid duplication of efforts. EX contractual arrangements (such as license agreements, marketing agreements, and development agreements), minority equity investments, and joint ventures that are operated as separate legal entities (such as corporations, limited liability companies, or partnerships)
- joint ventures
- are entities created out of the cooperative efforts of a small part of two or more corporations for a linited time period for example joint contract bidding research and development and new market penetration. (GM Toyotas NUMMI) EX business relationship such as the Fuji Xerox joint venture. This is in contrast to a strategic alliance, which involves no equity stake by the participants, and is a much less rigid arrangement
- investment center
- is used when investment center has knowledge to choose the optimal input mix of the price or quantityof an optimal productmix and investment opportunity to maximize risk adjusted return on asset or economic value added. An investment center consists of several profit centers EX GM and its many divisions. when it comes to investment center with several profit centers competing for investment funds a portfolio approach might proce to be useful. one should diversify into a portfolio of profit centers to max expected investment reuturns subject to a level of risk tolerance. Diversifiication reduces the importance of variance risk and increase the prominence of covariance risk.
- legal form nonprofit
- prohibits persons who control the organization from recieving the organizations residual profits. Residual profits must be used for the arts, education, or charity. Non profit organizations are private and self governing. They are exempted from federal, state, and local taxes. They must be financed trhough deebt internally generated funds and donations. Nonprofit organizations cannot pay top managers equity based compensation. Board members are typically commun ity leaders and major donors. EX Mend
- legal form for-profit
- have owners to recieve the residual profits. ADvantages of for profit organizations are that they can gain accesses to capital funds from publicly traded equit y markets and use equity based compensation to motivate workers. Non profit and forprofit organizations co-exist in certain sectors of an economy such as hospital, nursing homes and education. EX Target
- 7 legal forms of for profit organizations:
- 1 individual proprietorship-EX restuarant, clothing store,law firm etc 2general partnership-EX A good example would be a dentist office where two licensed densits partner together to open a dentistry office 3limited liability partnership-EX The limited liability partnership (LLP) is a similar business structure but it has no general partners. All of the owners of an LLP have limited personal liability for business debts. 4limited partnership=EX CONSIST OF TWO OR MORE PERSONS WITH AT LEAST ONE GENERAL PARTNER AND ONE LIMITED PARTNER 5limited liability company= EX LLCs are popular because, similar to a corporation, owners have limited personal liability for the debts and actions of the LLC 6 s corporation EX Generally, an S corporation is exempt from federal income tax other than tax on certain capital gains and passive income. 7 c corporation EX A C corporation is a business term that is used to distinguish this type of entity from others, as its profits are taxed separately from its owners