Christi Brady

Econ 12

2/23/05

Engraving Cartel

By Christi Brady

            Scott Silverman was the first to supply engravings with diamond accents. He became popular through advertising and always had new orders. He engraved everything from jewelry and picture frames to i-pods. It seemed like everyone with a little bit of money wanted to put their name with diamonds on anything they owned. Scott became so busy that he had to hire more and more people and his waiting list just seemed to get longer and longer. He tried to find someone to work for him that could engrave as good as he could but it was no use and Scott didn’t want unsatisfied customers. He was doing too well to let it all go to waste because of someone else’s mistakes. So Scott began to work longer hours, then he worked weekends. Things were not looking good for his personal life but his business sure was thriving.

Now, Scott was not a greedy man, at least he wasn’t until he heard about Jane Darling. While Scott was busy working day and night he had gained some competition. Jane Darling had begun offering engraving with diamond accents also—only she was offering it for less! Jane also didn’t have a long waiting list which appealed to customers. People began to call Scott to see if they could get taken off his waiting list. They offered excuses saying they had changed their minds. Scott was furious so he began to tell them that he had already started working on their orders. He lied so many times that he had to work even faster to keep up with the due dates. Finally, when he found himself getting sloppy he decided to go see this Jane Darling that he had heard so much about.

Scott found Jane working in her shop. Jane greeted him, “Hello. How may I help you?”

Scott realized she had no idea who he was so he decided to pretend to be a customer so he could find out some of her exact prices. “I’m just looking around. I need a gift for an old friend and I’m trying to decide if I should have something engraved.”

“Oh, well we have some wonderful picture frames that are great gifts for friends,” she replied as she walked over to a set of frames. “Here is one that holds two pictures. Perhaps you can put an old photograph of the two of you on one side and a new one on the other. Then maybe you could have your names or a saying engraved on it.”

At the moment she said that word engraved Scott could feel himself begin to get angry. “How much would something like that cost?” he managed to ask.

“Well, depending on how many letters and your selection of diamonds, you are looking at anywhere from $95 to $105,” Jane answered.

Scott nearly gasped! His prices for something like that were between $115 and $125. No wonder his customers had been buying from Jane. “I’ll think about it,” he said as he quickly left the store.

The next day Scott called Jane and asked if he could set up a meeting with her. Scott said he had a business proposal for her and Jane agreed to meet him for lunch. They met at a nice restaurant that Jane had been to a few times called Gerachi. Jane thought that Scott looked familiar but she couldn’t quite place him. “Have we met before?” she asked casually.

“Actually, I’m a little embarrassed because the other day I came into your shop to speak with you but I decided not to and I pretended to be a regular customer,” Scott answered.

“That’s right. I remember,” Jane said as she began to look over the menu. She wondered when Scott was going to bring up his business proposal.

Scott took a deep breath and began, “So, I’m not sure how to begin so I’ll be blunt. We are both competing for customers right now and I think I have come up with a way for the two of us to work together so that we are both benefiting. Before you say anything, let me give you an example. You know the picture frame you showed me? Well, you are selling that at about $95 to $105 but I have found that I can sell it for as high as $125. If you were to sell them at the higher price you would make more profits right?”

“Right, but what’s your point?” Jane asked.

“My point is that at $125 I can usually sell about 50 frames. If we both agree to sell 25 frames each at a price of $125 then we will both be making a profit and we will both have a steady flow of orders for that particular frame,” Scott answered.

“So are you proposing that we match our prices and keep the quantities that we produce equal to each other for all our orders?” Jane questioned.

“Well, ideally yes,” Scott countered. “I started out in this business making a killing but now I am rather tired from the amount of orders I’ve had and I’ll bet you have been pretty busy since you opened up. If we work together on this then we can both benefit.”

Jane was a little reluctant but she agreed and they set up a follow up meeting to go through all the details. After about two weeks they had everything running smoothly. Scott’s orders were all getting filled in a timely manner and he wasn’t losing customers to Jane any longer. Jane was making more of a profit and she had a steady flow of orders just as Scott said she would. Jane was happy with the new arrangement and was even considering asking Scott if he wanted to be part of a promotion she was planning for an upcoming holiday. It seemed as if their cooperation was working out perfectly but then Scott became greedy.

He found himself remembering how Jane had come in and taken away his customers so he decided that he would get even. So when Jane asked Scott to be part of a promotion she was doing he declined. Then when the holiday was close and Jane began her promotion, Scott began his own promotion. He lowered his prices and offered discounts. Orders came pouring in for Scott while Jane began to have fewer orders. She had no idea that Scott had broken their agreement.

Jane went to see Scott and that’s when she realized what he’d done. She was furious because the agreement had been his idea in the first place. What followed can only be called a bidding war because after Jane lowered her prices, Scott lowered his and this went back and forth until they were both barely breaking even.

“This has to stop,” Scott thought, “Since I started this I had better end it.” So he went to see Jane again and apologized profusely. “I have realized that it was a mistake to break our agreement and in the end it wasn’t even beneficial for me. I would like to go back to the original agreement because that’s when business, at least on my end, was running the smoothest. What do you think?” Scott asked.

“To tell you the truth, I’m not sure if I should go into another agreement with you because there is the risk that you won’t abide by that agreement,” Jane replied.

“But you see I will stick to the agreement because I learned the hard way that by lowering my prices I caused both of us to make less profit. That was a mistake that I would not make again,” said Scott.

“Okay I will work with you again but if something else goes wrong I will call the whole agreement off,” Jane said sternly.

Business for Scott and Jane returned to the way it was and they both made considerable profits. They began to work more closely on advertising strategies and they even used each other as resources when necessary. It looked like their agreement would last for a long time because they had truly realized the mutual benefits in working with each other.