2K Games, Inc, is a monopoly producer of Sid Meier's Civilization series of games. You

are hired by Sid Meier, its creative director, to help the company price a new edition of

the game, Civilization VII, due to be released on May 29, 2021. Consistent with Sid

Meier's vision, the new game has one third of existing features, another third of

improvements from the previous version, and the remaining third introduces new

features. This approach, in Sid Meier's view, allows to sell the game both to existing fans

and to reach out to new players.

The company has estimated that there are 10 million "fans", each willing to pay up to $50

for a box version. In addition, there are 20 million "novices" who are also interested in

trying a Civilization game, and their willingness to pay for a box version is $15. The box

version has a marginal cost of production equal to $5.

a. How would you price the box version? How many copies would you sell and what

would be your profit?

The CEO of the company reaches out to you to clarify something important. He says that

while the estimates for the numbers and types of customers and their willingness to pay

for the box edition are all correct, the company cannot sell Civilization VII like it is 1991

(the year the first Civilization was released). Specifically, it should make a version

available for download. The marginal cost of a download would be essentially zero, and

they estimate that fans would be willing to pay up to $25 to download the game, and

novices would be willing to pay up to $10.

b. How would you price the download version? How would you price the box version?

c. When you come to the CEO's office with the pricing plan, you find the CEO looking

quite shocked and embarrassed. He explains to you that when he mentioned to Sid

Meier his estimates about the fans' willingness to pay for the download version, Sid

Meier became livid and went on to explain, quite convincingly that a true fan of

Civilization would be willing to pay at least $35 for a new version, even it is

download only. So you are asked to redo the calculations and suggest how to price the

download version and the box version.

d. A week after making your recommendation in part c, Sid's nephew Hunter, who is

also a board member at 2K Games Inc. sends you an urgent email. According to the

latest estimates, there are actually 30 million novices interested in purchasing

Civilization VII. Hunter informs you that uncle Sid would appreciate it if you could

reevaluate the pricing of the download and box version of the product.