What is a Business Pool?
“A pool is a union of different companies that work together for enhanced profit.”
A pool can be defined as a union of different companies in the same or similar arena of business. The main aim behind such ‘coming together’ is to limit competition among themselves in such a way that each company gets the maximum profits.
This is done by way of controlling of prices. The combining firms retain their distinct identify and autonomy in their internal management. Under pools all the factors that affect prices, whether directly or indirectly, are considered.
For example, the forces of demand and supply determine price and such factors are pooled for the mutual benefit of the companies. Pool is a form of business association established through alliance of business units whose members seek a degree of command over price business.
Actually, the price making process is so set that some factors that affect prices are taken as a whole. Then, this collective fixed price is set as a standard amongst different participating companies.
It does not mean that all the companies become good friends with each other. Bickering and quarrels keep on issuing forth. The basic advantage is that such internal strife is taken in a healthy way and it is seen by the directors of companies that such issues don’t lead to any kind of backstabbing.
The member units surrender to association a right, which influences the determination of prices. To take an example, federating units may form imaginary pool of market output. This imaginary fund or pool of rights so formed is then allocated amongst member units.
A pool is a working agreement and is based on written agreement and may also provide for penalties for it violation. Pools are of different kinds.
In an ‘output pool’ the quotas are fixed and each member is required not to produce more than that particular quota. In ‘traffic pool’ the duplication of services are avoided. This eliminates wasteful competition.
The pooling of market or territory and its allocation among members is also one of the methods of price control. Market may be divided product wise, area wise or consumer wise.
In ‘income pool’ the whole revenue of the combining units is pooled together and the total amount so pooled is divided among the members after deducting operating costs and other such expenses.
Author - DeeKay
Tags - Finance, Economy
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