the outline of tiffany & co.

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“Tiffany and Co” name given by Charles Tiffany 1853

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“Tiffany and Co.”:

“ Tiffany and Co.” By: Brian Ahearn, Chris Lucatorto Katie Johnson, Megan Miller and Jamie Rigney

Table Of Contents::

Table Of Contents: Megan: History, Competitive Markets and Price Discrimination Katie: Opportunity Costs, Factors of Demand, and Substitutes Jamie: Cost of Production, Short Run Costs, Maximizing Profit, Taxes on buyers and sellers Chris: Substitutes and Elasticity, Economies and Diseconomies of Scale, and Advertising Brian: Income Equality, Employer Prejudices, and Roles of Government

Tiffany’s:

History: 1837- Charles Lewis Tiffany and John Young 259 Broadway Street New York Blue Box (1845)- American idol of sophistication Tiffany’s http://www.tiffany.com “ Tiffany and Co” name given by Charles Tiffany 1853

“Tiffany and Co”:

1862 Union Army 1885 Revises seal for the United States of America Headquarters moved in 1940 Stock is offered 1987 “ Tiffany and Co” http://www.tiffany.com http://www.greatseal.com

“Tiffany and Co.”:

“ Tiffany and Co.” Expansions: - Japan in 1972 -1986 London First in European market -1996 Tokyo http://www.tiffany.com -To San Francisco Global Expansions:

Opportunity Costs:

Opportunity Costs Opportunity Cost: “The Truest Measure of Cost is Sacrifice” (Lecture) What you give up over what you get. Example: for every watch that Tiffany’s & Co. makes, they must sacrifice one or more of another item Silver Business Card Case: $180 Stainless steel watch: $1950 Diamond Ring: $970-1,000,000 http://www.tiffany.com/shopping/default.asp?

Opportunity Cost (cont.):

Opportunity Cost (cont.) Breakdown of Net Sales: Jewelry: 80% Tableware: 5% Watches: 3% Other: 12% http://www.shareholder.com/tiffany/faq.cfm#285

Some Factors of Demand:

Some Factors of Demand Scarcity : A situation in which the amount of something available is insufficient to satisfy the desire for it. Tastes : Does society find this item desirable? Normal Goods : when income increases so does demand.

Shifts in Demand:

Shifts in Demand A Rightward shift of the Demand curve for Tiffany’s Diamond Jewelry can be caused by: Increase in scarcity Increase in Tastes (because it is a normal good) Price Quantity D º D ¹

Expectations and Tastes:

Expectations and Tastes Interdependent Preferences: Adam Smith Preferences dependent upon our perception of others well being in addition to our own wants and needs Diamond Engagement Ring Traditional, expected in our culture Social pressure for man to buy one for his wife → because of interdependent preferences Lecture Materials, Lecture 1

Diamond-Water Paradox:

Diamond-Water Paradox Diamonds Little practical use Mainly decorative Rare Expensive Water Necessary to all forms of life Drinking, cooking, cleaning Free (more or less) Why? Because of Demand and the principle of Scarcity www.victorianweb.org/economics/division.html

Substitutes:

Substitutes Price of Tiffany’s Diamond Ring $970-$1,000,000 Price of Walmart diamond ring: $198-$2988 BUT must take into consideration quality differences: Color, shape, clarity http://www.tiffany.com/shopping/engagement.asp http://www.walmart.com/catalog/catalog.gsp?cat=112221&adid=1500000000000000292530&dest=19488&path=0%3A3891%3A112221

Slide 13:

Explicit Costs- money a firm actually pays for inputs Examples: Wages Salaries 6,000 employees 3) Rent -120 stores and boutiques Costs of Production

Slide 14:

Implicit Costs- opportunity costs of production that does not involve money outlays Examples: Company owners time, labor, land Costs of Production

Short Run Costs:

Short Run Costs Fixed Costs- costs which remain constant Example: Utilities, Factory Equipment Variable Costs- costs which vary in the company Examples: Salaries of employees -Tiffany’s might decide to increase production of an engagement ring over the next quarter by obtaining more gemologists and metal workers.

Slide 16:

In an economy which firms are free to seek the maximum profit, firms will tend to produce the maximum output possible from the inputs they use. Also known as MR=MC As of July, 31 2003 Total Revenue- $442,495 Total Costs- $401,348 Maximizing Profit

Tiffany & Co.:

Tiffany & Co . Taxes on consumers shifts the demand curve down causing consumers to purchase less. Local taxes if applicable, will be added to one’s order except for Delaware, Montana, New Hampshire and Oregon. Price Quantity

Taxes on Sellers:

Taxes on Sellers Taxes on sellers will not effect what the sellers are “willing and able” to sell. However it will shift the supply curve to the left. Price Quantity

Substitutes and Elasticity :

Substitutes and Elasticity The demand for jewelry produced by Tiffany’s is determined by a buyer’s taste and budget constraint. An item is elastic when consumers are “willing and able” to buy from substitutes. (Tiffany’s vs. department stores) An item is inelastic when a buyer is only willing to purchase from Tiffany’s.

Economies of Scale:

Economies of Scale Specialization and division of labor By specializing in jewelry, Tiffany’s can produce more output in a more efficient time period. 80% of sales is from jewelry sales Diseconomies of Scale Distribution- the more popular Tiffany’s became, this allowed to expand their selling market. -International sales

Slide 21:

One way to differentiate your product 1.) Informs 2.) Product Efficient Resource Allocation 3.) Promotes Competition Advertising

Ways of Advertising :

Ways of Advertising Catalog Webpage Tiffany & Co_ Home.htm Bridal magazines Modern Bride

Advertising :

Advertising Advertising is most effective during certain times of the year. Christmas Valentine’s Day Spring Time ( weddings)

Slide 24:

Does Tiffany's have a compeletly competitive market? Assumptions of Perfectly Competitive Markets Homogenous Product Easy Entrance and Exit Large number of Buyers and Sellers Perfect Knowledge of Product Range from middle to high classes due to price Can go to the web site but one can not know everything No! P Q Tiffany’s is different from their other competitors such as Kauffman’s

Slide 25:

Is Tiffany's a monopoly? Monopoly is the only seller of a good or service with no close substitutes The monopolist is the market = “Price Searcher” P Q D If the price of a diamond ring increases, then quantity sold will decrease. If Tiffany’s wants to increase the quantity of diamond rings sold, then they must decrease price NO!

Slide 26:

Does Tiffany's have a Monopolistic Competitive Market? Assumptions of Monopolistic Competitive Markets Heterogeneous Product Downward sloping demand curve Marginal Revenue is below demand curve Perfect Knowledge of Product Large Number of Actors Relatively easy entrance\exit Bowls, baby gifts, jewelry $ Q D MR YES!

Slide 27:

Does Tiffany's have succuessful price discrinination? Conditions Necessary for Successful Price Discrimination Some degree of monopoly power Different elasticity's of demand Separate markets by elasticity Prevent resale Yes Yes NO Yes Charging different prices to different customers for reasons other than differences in cost.

Income Inequality:

Income Inequality Differences in Wages Employer Prejudices Differences in Human Capital and Ability

Differences in Wages:

Differences in Wages Attractiveness of jobs Differences in Productivity Imperfections in Labor Market

Employer Prejudices:

Employer Prejudices Discrimination – group of people have different opportunities because of personal characteristics that have nothing to do with their abilities Market forces work to discourage discrimination and reduce or eliminate any wage gap between the favored and the unfavored group.

Differences in Human Capital and Ability:

Differences in Human Capital and Ability Jobs that require more costly training will tend to pay higher wages Employees with greater talent, intelligence, or perseverance will be more productive Generate more revenue for firms = more pay Obviously Tiffany’s tries to meet these individuals needs and tastes

Why do differentials persist?:

Why do differentials persist? Non monetary job characteristics Cost of living differentials Differential in ability Differential in human capital Barriers to entry

Tiffany’s-problems that arise from Income Inequality:

Tiffany’s- problems that arise from Income Inequality Necklaces Looked at 5 Ranged from $550 - $4,750 Too pricey for some consumers Large part of potential consumer group unable to purchase Force cheap alternatives to emerge

Roles of Government:

Roles of Government Legal System Important to institutional infrastructure Criminal Law

Govt. Controls:

Govt. Controls -Controls on the import and export of rough diamonds - In future diamond industry trying to make own regulations Tiffany’s affected by these diamond regulations Higher cost for “true” diamonds Jewelry Council of South Africa (citation)

Slide 36:

Thanks for watching. That’s all for today. Let’s discuss the next time. Power by: www.tiffanyjewelrylife.com The end

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