2.3.1 Pricing Situation (1)
For pricing situation 1, the market share has been given in Exhibit 1 in the case in year 1990 3rd Quarter.
2.3.2 Pricing Situation (2) – same price @ $3
For situation 2, both companies had the same pricing of $3 for seven quarters based on the historical records in Exhibit 1. By adding up all the sales volume of both companies for seven quarters, we have 1,580,216 as the total yards for the market. Next, we added up the total sales volume of each company (BTC 125,745 yards & CPI 100,000 yards) and divided it by total yards of 1,580,216. We found out that BTC and CPI have 55.7% and 44.3% market share respectively.
Table 3 – Market Share for Pricing Situation 2
Again, these figures have been rounded to the thousand that matches Exhibit 2 in the case.
This market share figures will aid us later in deriving the market share for Pricing Situation (4) where both firms priced at the same pricing, albeit at $4 each.
2.3.3 Pricing Situation (3)
The same way of calculation has been done for this pricing situation. The market share % is then used to multiply the 225,000 average yards sold given by the case.
Table 3 – Market Share for Pricing Situation 3
2.3.4 Pricing Situation (4) – Same price @ $4
i) Market share of two firms, 55.7% for BTC and 44.3% for CPI, would remain the same as in Pricing Situation (2).
ii) Overall demand is reduced from 225,000 yards by 20% to 180,000 yards.
It was mentioned that overall demand would fall by 20% if T-30 fabric is no longer available at $3 in the case. A few assumptions were made under this pricing situation:
Table 4 – Market Share for Pricing Situation 4
As mentioned, the figures for market share/sale volume calculated under each pricing situations are rounded down/up to match the costing figures under Exhibit 2. With this, the total contribution margin for each firm in the four pricing situations can be derived as shown in Table 5 in the next section....