Products, Services, and Prices in the Free Market Economy

Products, Services, and Prices in the Free Market Economy

MBA/501

Dr. Ellen Szarleta-Instructor

September 02, 2006

Products, Services, and Prices in the Free Market Economy

Introduction

Wabtec Corporation which is formally known as Westinghouse Air Brake Technologies manufacturers braking equipment and other parts for locomotives, freight cars, and passenger railcars. For the fiscal year ending December 2005 the company generated revenues of $1 Billion dollars, an increase 25.8% of over the previous fiscal year (Wabtec 2006). The company conducts its business through two principle segments: the freight group and passenger transit group, both of which serve original equipment manufacturers (OEM), and provided aftermarket sales and services. The freight group manufacturers and services components such onboard electronic components, train coupler equipment, and engines. The freight division generates sales from OEM sales and locomotive overhauls, aftermarket sales, and from freight car repairs and services.

The company operates from around 40 plants, service centers and sales in the US, Canada, Mexico, Europe, Asia, Australia, and South America.

Problem Statement

With the recent news that Wabtec lost a multi-million dollar contract with CSX Transportation which operates the largest railroad in the eastern United States is considered a big blow to the freight group since it produces electronic train controls for locomotives. Sales for the electronic train control are low and Wabtec needs to decide whether to increase the sales/supply by increasing or decreasing the price of the good and services which it provides and in this case it would be the electronic train control system. Although, in the other divisions the sales are high with other equipment, Wabtec is driven to increase profits and revenues which benefit its shareholders even though the overall net sales and profits for the company are up.

In order for Wabtec to achieve its current goals it has to gather all the relevant information so it can make intelligent, informed decisions. Wabtec has to access the demand for its electronics train control system in the current market and determine if it can supply the demand for its product.

Risks and Opportunities

With any business decision risks are involved and with careful planning and risk management, Wabtec will overcome any possible risks that may arise. The main risk at stake with the company is the price of the train control. If the demand is low the prices will stay the same or increase a little. If the demand is high prices can be lowered as more supply increases. Wabtec has to contend with the inelasticity of price of demand. In general a fall in price of good is expected to increase the quantity demanded. Another risk involved is losing potential customers to its competitors who may offer goods and services at lower price than Wabtec. To mitigate potential risks and provide assurance to its shareholders that controls are in place to mitigate risk, Wabtec should look at the business in terms of the only business of its kinds that specialized in goods and services to the railroad and transit industry. Wabtec has to consider the major risks