Question

You have learned the concepts of "reservation price" and "consumer value”. Let us see how the bundling strategy can possibly increase a company's profit in real-life business settings. The following table contains different consumers' values for three software titles: PowerPoint, Excel, and Word. Suppose there are 100 consumers of each type. It costs Microsoft $5 to produce each piece of software. There are 4 possible pricing strategies (A, B, C, D) listed below. Which strategy should Microsoft adopt if it wants to devise a pricing strategy that is incentive compatible between consumer types and will maximize its profit? Why? Show your calculations, compare/rank all choices, and explain. (You can directly type your answers in the Message box or attach a Word document to show your calculations. Your score is based on your explanation.) Consumer Types Accountants Marketing Sales Administrative Assistants PowerPoint $75 $125 $50 Excel $100 $80 $175 Word $150 $135 $75 A. charge $50 for PowerPoint, $80 for Excel, and $75 for Word. B. charge a single price of $300 for the bundle of PowerPoint, Excel, and Word. C. charge $125 for PowerPoint, $175 for Excel, and $150 for Word. D. charge $325 for the bundle of PowerPoint, Excel, and Word and permit consumers to purchase each software title individually at $81.10 each.

Answer 1

Answeg A) Pageno charge $50 for powe spoint, $80 four Excel and $75 for world 300 Con şumerd will buy all three softuer) All Sox 300 + 80 X 300+ 75 X 300 = 15000 +24000 + 22,500 = 61,500 choorge a single price of $ 300 for the bendle of powerpoine, Excel and would - The Accountants are ready to pay 3as moorketing 340 and Administrative 300. :: Hence, they will choose thiş option 300x300= 90,000 ) charge $125 for power point , $145four Excel, and $150 for word. -> blas x 100+ $175X106 + 150X100 = $45000