Some professors might want to also cover mixed

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Some Professors might want to also cover “mixed bundling,” offering the goods for sale individually aswell as in a bundle. Here in an individual HW question that has as the right answer a mixed bundle. Youcan go over this example. Mixed Bundling Problem At the 8:10 café, there are equal numbers of two types of customers with the following values.The café owner cannot distinguish between the two types of students because many studentswithout early classes arrive early anyway (that is she cannot price discriminate).Students with early classesStudents without early classesCoffee7060Banana50100The MC of coffee is 10. The MC of a banana is 40. Is bundling more profitable than sellingseparately? HINT: if you sell the bundle, can you make more by offering coffee separately?If so, what price should be charged for the bundle? (show calculations)Answer: Mixed bundling is more profitable than only selling separately…Price bundle at 160, earn 160-50=110; price coffee at 70, earn 70-10=60. Total Profit is 170.Price separately only: price coffee at 60, earn a 120-20=100; price bananas at 100, earn 100-40=60 Total profit is 160.Bundle only: coffee + banana at 120, earn 240 – 100= 140; Total profit is 140.57
In-class ProblemThere are two in-class problems in the teaching notes above. A third in class problem would be to modifythe software pricing example by changing the number of consumers in the high and low value groups; orby changing the amount that each consumer type is willing to pay for each version of the software. Additional Anecdote: Trip InsuranceInternational Expeditions, Inc. (IEI) provides trip cancellation insurance for international travelers. Tripcancellation insurance provides reimbursement of prepaid trip costs to travelers in the event ofinvoluntary cancellation by the customer. Claims are subject to specific catastrophic events such as death,sickness, loss of home, or other circumstance beyond the insured’s control. Since January of 2002, therehas been a marked increase in the number of claims against these insurance policies. In response to theseclaims, the insurance companies have raised premiums. Consequently, the number of travelers selectingthis insurance is decreasing, with customers choosing to bear the risk instead.IEI currently utilizes uniform pricing based on the trip duration. With this pricing strategy, they can notdifferentiate between high and low risk travelers. In the current pricing environment, low risk travelersare declining insurance cutting off a profitable stream of business from the company. If IEI coulddiscover a way to price policies separately to high and low risk clients, it could restore this profit stream.IEI can not, however, simply ask whether travelers are high or low risk since the higher risk travelerswould assign themselves to the low risk category to get lower rates. By studying its customer histories,the company found that frequent international travelers have greater experience with travel and are lesslikely to file claims against trip insurance (low-risk traveler).

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