Question

Your consulting firm was just granted an exclusive contract for Vanda-Laye Corporation. 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 decisions will be those of a monopolist. Tasks: Analyze what a monopolist is and the effects it could have on the consulting firm. Evaluate if any antitrust policies need to be put into place. How will your pricing policy be justified? Explain the implications of increasing the price you will charge Vanda-Laye Corporation verses what it was previously charged.

Answer 1

A monopolist is an individual that seeks to own a large portion or nearly all of the market for a given type of product or service.

As the contract is exculsive it implies that there are no substitutes in the market for the same.As such the pricing policy that needs to be done in monolpolist case is that we should try to maximise our profits to the utmost as there are no further competitions in the market and we have an exclusive contract so we can charge good mark up price.

Anti trust policies refers to intervention of government in markets dominated by monopolies and when it is used unfairly to charge excess price from the customer.In this case it is not required.

We can justify our pricing policy on the basis of better resources and services which we provide to the customers and also our costs have increased for maintenance of the same as such we have such price determined.

The implications might be that they would analyse the quality of our work and justfy our price for the contract and accordingly will plan for their future endeavours.