Question

In: Economics

You manage a cable company that offers 2 channels - NBC and Fox. You face 2...

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  

Solutions

Expert Solution

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.


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