Beauregard Textile

Company
Case Analysis –Group 3
Aakriti Bhargava

Amit Agarwal

Ankit Prakash

Sringar Sah

Yamini Kapoor
Case Facts
• Beauregard is a textile company with annual sales of about
$82 million making it one of the largest firms in its segment.
• Currently, due to recent increase in costs the price of Triaxx-
30, a fabric manufactured by BTC, has been increased from $3
to $4.
• The current supplier market for Triaxx-30 (T30) is a duopoly
with Calhoun & Pritchard Inc. as the only other supplier.
• Since C & P have retained their price of $3 BTC has lost its
market share.
• The current problem faced by the BTC executives is whether
to reduce the price back to $3 so as to regain market or to
remain at $4 in order to maintain profits.
Analysis
• Traditionally BTC owned close to 56% of the market share for
Triaxx-30, while C & P owned 44% of it.
• Due to the increase in costs incurred by BTC they were forced
to increase their price from $3 to $4. The customers being
price sensitive immediately shifted towards C & P which
resulted in loss of market share for BTC. Now BTC has 33% of
the market share while C & P has 66%.
• C & P generally waits for BTC to announce their price list
before publishing their own price list so as to remain at par
with the competition.
• But when BTC increased their price C&P refused to follow suit
and maintained their price level. Since the market is inherently
price sensitive it is estimated that the market size will shrink
by 20% if both suppliers increase their price levels
Possible Alternative
• Maintain Status Quo, ie, BTC prices at $4 while C & P prices at
$3. In this scenario C & P enjoys major market share while not
making good profit margins where as BTC while losing their
market share they are able to cover their costs and claim
profits through higher price. This also doesn’t result in
shrinkage of the market size.
• BTC reduces its price to $3. In this scenario BTC will mostly
regain their market share but may not be able to cover their
costs through the price. There is no loss of market size in this
scenario
• C & P raises their price to $4. This will result in market
shrinkage by 20% . Both players will enjoy greater profit
margins in this scenario. But both players raising their prices
simultaneously may be regarded as collusion and deemed
illegal.
Calculation
• Cost Analysis
• The relevant costs to be considered while calculating the
contribution to profits of T-30 are
• Direct Labor
• Material.
• Material Spoilage.
• Direct Department Expense
• Expenses that are not related to the scale of production of T-
30 can be excluded. Also the expenses that have been
allocated to cover costs which are common to other items can
be excluded.
Conclusion
• From the analysis we find that the combined profit of the
firms is maximum when both firms go for a price of $4. This
may be regarded as collusion because the firms are required
to set their prices independently and a simultaneous rise in
prices may lead to legal action.
• Moreover, we see that C&P obtains maximum profits when it
lists a price of $3 and BTC prices at $4. Hence it is highly
unlikely that C&P increase their price to $4. So, in-order to
increase the overall contribution BTC should reduce their price
to $3.