08 April 2014
Problem Set #3 Minh Hoang, Carolyn Ku,Andrew Lam, Miguel Perez
a) What’s at stake for the key parties, including those with whom Susan disagrees?
For me (as Susan), reputation with the general public and potentially generated revenue is at
stake. My job, or rather, a seemingly imminent promotion, would be at stake depending on the
outcomes. The company’s image is at stake due to the fact that if they endorse the use of a
product that comes with such a negative side effect, they would be under fire. Within the general
population, the health of those who use the product is at stake; not only that, the health of those
who would be brought into using the product due to increased advertising and directed
advertising would be at risk as well.
b) What are the main arguments Susan is trying to counter? That is, what are the reasons
and rationalizations that you need to address?
Capturing the product’s use in the alternative market would generate up to a 50% increase in
sales. Making this move also captures the uncaptured consumer surplus. This move also takes
advantage of the spare capacity the production line of the product has, thus maximizing producer
surplus as well. On the other hand, there is an argument to push for the product seeing as so
many people have endorsed and mentioned the product by name as a means to kick start a diet.
Another argument is that products such as these tend to have side effects, and in most cases, a
disclaimer would be enough to rid the company of liability.
c) What levers/arguments can Susan use to influence those with whom she disagrees? It is unethical to ignore unhealthy side effects of a product in order to pursue additional profit
when the company is already profitable. In the event that the product is discovered by many to be
unsafe for adult use, doubts of its safety for infant use could possibly rise as well. Since the
product is in its mature phase, and has been a contender in the market for so long, it would be
more advisable to continue to uphold market share rather than attempt to capture an alternate
market. Consumers who want to use the product as part of a detoxification diet/flush are free to
do so, but endo