Question
Suppose Caroline values video game X at $70 and video game Y at $30, whereas Jacqueline values video game X at $30 and video game Y at $60. The marginal cost to produce each game is $0. If a firm that produces both games decides to bundle X and Y, what price should it charge, and why is this bundling strategy more profitable than selling each game separately at a single price (assuming price discrimination is not possible)?
A. If the firm wishes to sell each product separately, it will earn at most $
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Correct! If the firm wishes to sell each product separately, it will earn at most $70 for the sale of game X (by pricing game X at $70) and selling only to Caroline.
For further review, see section “Competition and Pricing Strategies” (please link to section in the ebook).
Incorrect! If the firm wishes to sell each product separately, it will earn at most $70 for the sale of game X (by pricing game X at $70) and selling only to Caroline.
For further review, see section “Competition and Pricing Strategies” (please link to section in the ebook).