Question

Q5:

Consider a monopolist producing the products A & B. They have tow customers, customer 1 is willing to pay $100 for 1 unit of A and $50 for 4 units of B. Customer 2 is willing to pay $50 for 1 unit of A and 100 for 1 unit of B.

The demands are independent across customers and within customers across goods. Each customer will but either 1 or 0 units of each good. Assume the marginal cost of producing either good is 0.

Given the information, which strategy will be superior? No bundling or pure bundling. Explain.

Answer 1

Answer

pure bundling method will be much more preferable by the consumers as both the consumers are willing to pay for both the products and with bundling method the satisfaction and needs can be easily catered . And the bundled price will be less than the individual prices resulting in increase in demand for the products . The producers can generate profits out the two products easily in bundling than selling them individually. As there is difference in the willingness to pay for each product.