Course 201: Understanding a Business
In this course
1 Introduction
2 Barriers to Entry
3 Price Elasticity
4 Substitutes
5 Capital Intensity
6 Market Penetration
7 Regulation

If you go into business, you want the freedom to earn as much profit as you can. The key is whether your company can raise prices when it needs to. Utilities historically have not been able to. Cable companies have to set prices with one eye on the regulators. Credit-card companies run up against usury laws in many states. Such restraints on pricing really hurt when inflation jacks up costs, because it becomes harder to pass those costs on to consumers. As for Starbucks, aside from zoning laws, there aren't any major regulations that affect the coffee-retailing business. Most of this information--the list is by no means exhaustive--simply comes from thinking about a company, determining who its competitors are, and checking its financial statements. And yes, it helps to be a customer of the company. Other bits of information--concerning regulation, for example--can be gleaned from the 10-Ks on file with the Securities and Exchange Commission (and available on the SEC Web site ). With a little detective work, it's not hard to uncover the economics of a business. And it's a bit safer than trusting your 10-year-old.

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