Belletricity Inc., a medium electronic circuit board manufacturer in the US, is a long-term supplier to Morden Equipment (ME). ME is Belletricity’s only client. Every year, Belletricity sells around 5 million circuit boards to ME, which occupies Belletricity’s full production capacity. In 2012, ME informed Belletricity that due to business expansion, ME would increase the purchase from 5 million to 15 million starting from 2013. Belletricity has been selling circuit boards at the unit rate of USD 0.8 to ME so far. Due to the future increase of the buying volume, ME therefore asked Belletricity a price cut to USD 0.6 each. After negotiation, ME agreed to buy from Belletricity at the price of USD 1.00 starting 2013, for three years consecutively, till 2015. a)  What was the rationale behind that ME agreed to pay a higher price to buy from Belletricity for the next three years?  b)  Why could Belletricity successfully persuade ME to accept her requested price?

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Belletricity Inc., a medium electronic circuit board manufacturer in the US, is a long-term supplier to Morden Equipment (ME). ME is Belletricity’s only client. Every year, Belletricity sells around 5 million circuit boards to ME, which occupies Belletricity’s full production capacity. In 2012, ME informed Belletricity that due to business expansion, ME would increase the purchase from 5 million to 15 million starting from 2013. Belletricity has been selling circuit boards at the unit rate of USD 0.8 to ME so far. Due to the future increase of the buying volume, ME therefore asked Belletricity a price cut to USD 0.6 each. After negotiation, ME agreed to buy from Belletricity at the price of USD 1.00 starting 2013, for three years consecutively, till 2015.

  1. a)  What was the rationale behind that ME agreed to pay a higher price to buy from Belletricity for the next three years? 

  2. b)  Why could Belletricity successfully persuade ME to accept her requested price? 

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