Question

In: Economics

Netflix sells a subscription service to 2 types of customers: hardcore movie-watchers who usually watch 10...

Netflix sells a subscription service to 2 types of customers: hardcore movie-watchers who usually watch 10 movies a month and value the service at $50 a month (or $5 per movie), and casual movie-watchers who usually watch 5 movies a month and value the service at $20 a month (or $4 per movie). There are an equal number of customers of each type. Which of the following pricing strategies generates the most profit for Netflix?

price the subscription as free and charge $4 per movie

price the subscription as free and charge $5 per movie

price the subscription at $10 and charge $4 per movie

price the subscription at $10 and charge $5 per movie

price the subscription at $20 and charge $3 per movie

price the subscription at $20 and charge nothing for each movie watched

price the subscription at $50 and charge nothing for each movie watched

Please explain how you get the answer. The answer is not A ($0 subscription and $4/movie)

Solutions

Expert Solution

Among all strategies B and D will generate maximum profits for Netflix

Rahul Sunny answered 1 year ago
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