NatBike, a bicycle manufacturer, has identified two customer segments; one that prefers a customized bicycle and...
NatBike, a bicycle manufacturer, has identified two customer segments; one that prefers a customized bicycle and is willing to pay a higher price and another that is willing to take a standardized bicycle but is more price sensitive. Assume that a customized bicycle costs $400 to manufacture, whereas a standardized bicycle costs $300 to manufacture. Demand from the customized segment has a demand relationship of d1 = 40000 – 40p1 and demand from the standardized segment is d2 = 60000 – 75p2.
What price should NatBike charge each segment if its goal is to maximize profits? What is the total profit? If NatBike were to charge a single price over both segments, what should it be? How much increase in profits does differential pricing provide?
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