Through 1984, Pacific Oil had essentially cornered the market on VCM, and was consequently able to exact very high prices for its VCM. It secured the renewal of a very valuable contract with Reliant, a contract whose prices reflected the leverage that Pacific Oil had. However, at the end of 1984, it became apparent that Pacific Oil’s competitors were going to increase their supply of VCM, and that Reliant was aware of this. Fontaine and Gaudin knew that they needed to work hard to retain the business of Reliant as supply increased, because there were relatively few, very large customers in the market. To give an idea of how difficult this situation was for Pacific Oil, in 1984, Pacific Oil plants had to run at 84% of capacity to meet demand. However, it was expected that by 1990, they would be running at something like 60% of capacity. This would leave Pacific Oil with a significant amount of capital …show more content…
In order to prevent this, Pacific Oil would need to significantly increase its long-term sales of MVC, ideally by expanding its already profitable contracts with existing customers. At this time, Fontaine was a marketing executive overseeing the relationship between Reliant and Pacific Oil. Gaudin was his subordinate. There was a second concern particular to Fontaine and Gaudin: Pacific Oil was considering directly processing VCM, which would mean that it would be uninterested in supplying VCM to competitors except at a very favorable price. While this could be a good thing — it would help Pacific Oil weather the storm caused by fluctuating demand — it would be a somewhat bad thing for Fontaine and Gaudin if the account they were in charge of was entirely abandoned, so they felt the need to secure a favorable price even in the absence of the market advantages that