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

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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
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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
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Now suppose that customer 1 has a higher valuation: Good 1 Good 2 Customer 1 5 7 Customer 2 2 10
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