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zx<lnc< z Mr. Thomas Zimmermann, manager of the European Sales Division of Computron, Inc., trying to decide what price to submit on his bid to sell a Computron 1000X digital computer to Konig & Cie., A.G., West Germany's largest chemical company. Were Mr. Zimmermann to follow Computron's standard pricing policy of adding a 331/3 percent markup to factory costs and then including transportation costs and import duty, the bid he would submit would amount to $311,200. Mr. Zimmermann was afraid that a bid of this magnitude would not be low enough to win the contract for Computron.

Four other computer manufacturers had been invited by Konig to submit bids for the contract Mr. Zimmermann had received information from what he considered to be a "reliable trade source" which indicated that at least one of these four competitors was planning to name a price somewhere in the neighborhood of $218,000. Computron's normal price of $311,200 would be $93,200, or approximately 43 percent higher than this price. In conversations which he had had with Konig's vice president in charge of purchasing, Mr. Zimmermann had been led to believe that Computron would have a chance of winning the contract only if its bid were no more than 20 percent higher than the bid of the lowest competitor.

Inasmuch as Konig was Computron's most important German customer, Mr. Zimmermann was particularly concerned about this contract and was wondering what strategy to employ in pricing his bid.

Background on Computron and Its Products

Computron, Inc., was an American