Your company sells health food porducts, and you have recently developed a new h
ID: 1192864 • Letter: Y
Question
Your company sells health food porducts, and you have recently developed a new high protein drink (HPD) as well as a high carb energy bar (HCE). As the product manager for the firm, you are responsible for setting the pricing policy for the new products. You are considering a bundled package that includes both products, and you assume the marginal cost of production is zero for planning purposes. You have identified four basic types of consumers who may buy these products, and their reservation prices for the new products are provided in the following table:
a. Suppose you sell the two products seperately, and each buyer is expected to purchase one unit of the product per day. What prices for HPD and HCE maximize daily revenue? What is your daily revenue from selling both products to the 4 customers under sepearate pricing?
b. If you offer the two products under a pure bundling strategy, what is revenue maximizing bundle price? What is the daily sales revenue from the pure bundling scheme?
c. Please develop a mixed bundling strategy that generates higher daily sales revenue than the pure bundling strategy. What is the daily sales revenue generated under mixed bundling?
type hpd hce a $0.50 $1.80 b $0.80 $1.10 c $1.00 $0.90 d $1.40 $0.30Explanation / Answer
The consumer will buy a good if the market price is equal to or less than the reservation price.
In the table above the lowest reservation price for hpd is $0.50 and for hce is $0.30. If the manager set the price equal to mnimum price, each type of customer buy the product. The sales revenue from hpd will be $2 and from hce is $1.2.
On the other hand, if the price of hpd is $0.80,and hce is $0.90. In this case, each 3 type of customer buy the product. The sales revenue from hpd will be $2.4 and from hce is $2.7.
On the other hand, if the price of hpd is $1,and hce is $1.10. In this case, each 2 type of customer buy the product. The sales revenue from hpd will be $2 and from hce is $2.2.
then the revenue maximizing price will be such that, the price of hpd is $0.80,and hce is $0.90. The total maximized sales revenue is $5.10.
In case of pure bundling strategy, the reservation price for bundle for each type of customer is given in the table below
type
Reservation price
a
2.3
b
1.9
c
1.9
d
1.7
If the manager set the price equal to lowest bundling price equal to market price for bundle. Then revenue from bundling as every type of customer buys the bundle is $6.80. No other price generates a revenue higher than this.In case of mixed bundling the manager should set the price of each good equals to highest reservation price for each good. This way only those consumer whos reservation price is higher than or equal to market price will buy buy the single product. The manager then should set the bundle price equal to $1.9. This way three types of consumer will buy the bundle. The total revenue would be $5.70. The consumer of type d will buy only hpd.As his reservation price for hpd equals market price but the market price for bundling is greater than his reservation price for bundling. The total revenue from this mixed strategy is ($5.70+$1.40)=$7.10. This is higher than the revenue from pure bundling.
type
Reservation price
a
2.3
b
1.9
c
1.9
d
1.7
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