Question

(a) Explain why product bundling leads to lower prices according to prospect theory. (b ) Give an example for (a). (c ) Give an example that is an exception to (a), that is where the opposite is true, and the bundled product has a higher price than the summative price of its individual components.

Answer 1

ANSWER

AS per the given question,

a- In prospect theory, the person sees the opportunity which has giving the most gain so company use this theory in Product bundling in which company is offering several products or services for sale as one combined product or service package .

This product bundling reduces the prices of products because company is able to reduce its business cost by increase in economies of scale in production and distribution .the marginal cost of bundling is low also Consumers appreciate the resulting simplification of the purchase decision and benefit from the joint performance of the combined product or service. so prices of bundled products or services are lower.

for example- We as customer purchase vacation packages so we get service of flight ,service of ride like cab , service of hotel, service of tour guide etc in one package.

also when we purchase calling package so we get internet service with free text message at lower price.

The exception of this could be purchase superior products like precious ornaments in bundle like giving order of gold earnings, chain, necklace etc to a goldsmith so price will be higher like a complete set of gold chain, necklace and ear rings will cost more .

Thank you for the question....Kindly rate ..it helps me a lot