Question

Afirmthatproducesaccessoriesforsmartphoneshiredamarketingresearchcompany to find out how much its customers are willing to pay for its cases and screen protectors. The marketing research company found that there are only three types of customers with the following willingess to pay for cases and screen protectors:

Customer A Customer B Customer C

Case $3.25 $8.25 $10.00

Screen Protector $6.00 $3.25 $10.00

Bundle $9.25 $11.50 $20.00

As we did in class, assume that there is only one consumer of each type and that each consumer buys at most one case and one screen protector. Assume also that the marginal cost of production is zero.

(a)If the firm were to charge only individual prices (separate pricing), what prices should it set for its cases and screen protectors to maximize profit? What is the firm’s profit?

(b)After conducting a costly study, an outside consultant claims that the company could make more money from its customers if it sold cases and screen protectors together as a bundle instead of separately (pure bundling). Is the consultant right?

(c)Could you suggest a mixed-bundling pricing strategy that could beat (a) and (b)? Explain.

Answer 1