Bundling. A monopolist is considering selling its product separately, bundled, o

Question

Bundling. A monopolist is considering selling its product separately, bundled, or mixed bundled. Product A (Rock and Roll hits of the 1960s) costs S25 to make. Product B (Rock and Roll Hits of the 1970s) costs S30 to make. The reservation prices arc shown below for 4 customers. It is considering 3 strategies: 1) Selling the goods separately at Price P_A = $50, P_B = $90 2) Selling the goods as a bundle at $ 100. 3) Mixed bundling: P_x = $89.95, Pn = $89.95 and bundle price = $100. show which strategy is most profitable

Explanation / Answer

Profits under strategy 1

For a price Pa = 50 and Pb = 90, three A and 1 B will be sold. Total profit on A is 50*3 - 25*3 = 75. Total profit on B = 90 - 30 = 60. Total profit is thus, 135

Profits under strategy 2

For a price Pa + Pb = 100, all four bundles will be sold. Profit will be 100*4 - (25*4 + 30*4) = 280

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