Fixing on an Equilibrium

Season 5, Episode 6: Eric Child and Spencer Quinn have a product that immediately impresses – FiberFix! Three sharks quickly bid for a deal. Have students keep track of what each shark offers. What are they offering? Does it differ in value? Are they headed toward a different equilibrium price than Eric and Spencer first envisioned? Students should observe that each shark is placing a value on their personal human capital in addition to the dollar amount they offer. Their offers also differ by credit versus equity. More advanced students can calculate the present value of these offers under different sales scenarios and decide if Kevin is correct (time 9:57) when he claims the equity they would retain would be more valuable than a 20% royalty in perpetuity. Kevin cites a $100 million sales scenario. What would be the point at which trading the equity would be the better deal? At the end of the pitch, Lori is the only shark left. Little bargaining power is left in this situation and the price adjusts once again as they search for an equilibrium offer. Each party is trying to extract maximum value (consumer and producer surplus).