Guillermo Furniture Store Concepts Paper

Guillermo Furniture Store Concepts Paper

Melanie L Gibson

FIN/571

Monday, February 11, 2013

Ken Baker

Guillermo Furniture Store Concepts Paper

Guillermo Furniture located in Sonoma, Mexico for years enjoyed a profitable business that was bolstered by an ample supply of timber for production, a low cost associated with labor and the ability to charge a small premium on products based on quality. By the late 90’s, the area began to see substantial population growth as large retailers began to open in the area. The low housing costs and growth of retailers attracted other businesses, including overseas manufacturers who could provide customizable furniture at “rock bottom” prices. The population growth also meant that the cost of labor increased, further shrinking the profit margins of Guillermo Furniture. This paper will discuss how economic principles relate to the scenario facing Guillermo Furniture.

The Principles of Self Interest and Two-Sided Transactions are the foundations of all the financial transactions in this scenario. Guillermo is looking for the course of action that offers him the greatest financial advantage. Competitors, workers and customers are all making financial decisions where they seek to have the financial advantage. The principle of zero sum game says that only one side in a transaction will almost always have that advantage. In order to make choices between options, each side acting in their own self- interest typically considers these general principles.

In the past, Guillermo’s advantage was gained based on the fact that the business operated in a prime location in terms of raw materials, there was little competition for goods, and the higher prices were a premium for quality. The Signaling Principle, the idea that “we can guess at the information or opinions behind the decisions we observe,” (Emery, Finnerty, & Stowe, 2007, p.23) is based on the idea that everyone makes decisions based on their own self-interest....