Question

You manage a cable company that offers 2 channels - NBC and Fox. You face 2 types of customers (type A and type B) and there are 100 customers of each type. Their respective values for each channel are: Type A Type B NBC $10 $15 Fox $3 $7 If the marginal cost of selling each channel is $1 per channel, what is the most profitable strategy? sell the channels separately bundle the channels indifferent between selling separately and bundling the channels  

Answer 1

Ans. The most profitable strategy would be to sell the channels separately. As consumers value NBC more than fox and type B consumers are willing to pay more than type A, thus, selling them separately will increase profits. This is a type of indirect price differentiation strategy.

We can differentiate the product in a way that Type B customer's pay more than type A.