Economy

[py52126]

Hi,

I'm taking a business class at college that I need help with. The question that I have is "If a major business/corporation dramatically voluntarily dropped it's prices for their services/products, how much would that help the economy?

[Peter.j.bea]

That questions has FAR to many variables. Would this major company be an automotive company offering service or product to the general population? Or a media company such as Newscorp controlling aspects of costs for its services and "time" to other businesses and general media?

If this is directed towards a business offering general services to the public then it would depend on the companies ability to accommodate a potential loss of sales. How hard is the company being hit? Is the company doing this simply to stand out in the market? Are they being FORCED to do this? Will they be downsizing?

I suppose that if they could accommodate they could cut costs overall, but if the company was large enough and was forced to layoff staff in large amounts to accomodate the cut in prices, then you would have to assume oter companies below its bracket would make attempts to emulate the process in an effort t prepare for what they are assuming that other company would be doing. This could lead to many companies dropping staff and losing jobs and the media going nuts and dropping everything.

There are FAR more issues to take into consideration then simply lowering prices, consider your variables and possibilities. Draw a bubble chart and start breaking down the thought process.

[mthomas]

Agreed, this is a pretty broad question. For one thing, if the company keeps on dropping prices, than this would have a deflationary effect and customers would prefer to defer purchases until prices drop even further, thus preventing the company from earning revenues.

As peter also mentioned, price cuts mean less revenues, so layoffs are very possible, resulting in poor workplace culture, a drop in product quality and customer service and probably a drop in the company's supplier's revenues.

There are plenty more implications for this, but I hope this answers your question.

[outsourcery]

Like the other guys said.. pretty undefined question.

If you presume that they are dropping prices aggressively to an unsustainable level, and that they are a major player in a major industry, then this is usually destructive in the long term. Commonly referred to 'predatory pricing' and is illegal in most modern economies. *very difficult to prove and prosecute though*

In the short term consumers win (hooray low prices), and the company grabs market share.

In the longer term however, it's competitors are crushed and go out of business. The company can then raise it's prices or cut back on service etc. due to reduced competition. This is bad for the economy, which is why its usually illegal.

Cheers
Hugh

[Dmoore323]

It wouldn't help the economy in the slightest bit.

[hotintentions]

WHat would you have to do tax wise for next year and how much would you keep out of your payments to help comer your payins?