Question

There is a market with an equal number of Type A consumers and Type B consumers. Type A consumers value iphones at $100 and Apple earpods at $30. Type B consumers value iphones at $120 and Apple earpods at $10. Apple cannot identify Type A and Type B consumers and so must charge the same price for all consumers. A) If Apple wants to sell to both Type A and Type B consumers and packages each product separately, what price would Apple charge for iphones? What price would Apple charge for earpods? B) If Apple wants to bundle the two products together, what price would Apple charge for the bundle? C) How much profit per consumer can Apple make from bundling iphones and earpods together relative to selling them separately?

Answer 1

Type A consumers value of

iPhones = $100

Earpods = $30

Type B consumers value of

iPhones = $120

Earpods = $10

A) So if Apple wants to sell to both type A and B consumers and package each product separately then it will charge the lower price for each product such that both consumers A and B can purchase them.

As value of iPhone for A is $100 and for B is $120.

• So, Apple will charge $100 for iPhone such that both will buy.

As value of earpods for A is $30 and for B is $10.

• So, Apple will charge $10 for earpods such that both will buy

B) When Bundling happens

For type A consumers bundle will cost = $100 + $30 = $130

For type B consumers bundle will cost = $120 + $10 = $130

As both consumers value the same amount for the bundle of iPhone and earpods i.e. $130

• So, Apple will charge $130 for the bundle.

​​​​​​​C) When bundling was not done :

Price of iPhone = $100

Price of earpods = $10

So, Together their cost without bundling = $100 + $10 = $110

Now, After bundling as found in part B) is = $130

So, Profit = Together price after bundling - Together price before bundling

Profit = $130 - $110 = $20

• ​​​​​​​So، Apple makes profit of $20 per consumer by bundling iPhone and earpods.

​​​​​​​