301lec22b

301lec22b - Some Examples of Bundling and Tying. •...

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Unformatted text preview: Some Examples of Bundling and Tying. • Simplest example of bundling: One consumer with demand q = 4- p . Monopoly firm with zero cost. If the firm has to use a single per unit price, then it would maximize (4- p ) p by setting price p m = 2. The other thing that it could do is just price a bundle of 4 units at 8. The con- sumer will purchase the bundle, but is the firm was to set price at 2, the consumer will only purchase 2. • Two-part tariff is another way to achieve this: Let the consumer pay 8 as a fixed fee, for the right to purchase at 0. 1 Different forms of tying a profitable de- pending on the valuations. Consider the following table of valuations of the three customers: Good 1 Good 2 Customer 1 2 7 Customer 2 2 10 Customer 3 12 4 Optimal strategy: Charge 7 for the sec- ond good and 16 for the bundle of two goods. Customers 1 and 2 will buy good 1 and customer 3 will buy the bundle for the total profit of 30 2 Now suppose that customer 1 has a higher valuation: Good 1 Good 2...
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This note was uploaded on 01/28/2011 for the course ECON 301 taught by Professor Chapple during the Spring '08 term at UBC.

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301lec22b - Some Examples of Bundling and Tying. •...

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