Question
A video game system producer has just finished developing a new gaming system, System 2, and you are tasked with determining the optimal release strategy.
A video game system producer has just finished developing a new gaming system, System 2, and you are tasked with determining the optimal release strategy. In particular, should it offer only one version, and if so which one: the current System 1 or the new System 2. Alternatively, should it offer both systems simultaneously?
The firm’s market research team produced the following numbers regarding willingness to pay for the two systems:
| WTP for: | |||
|---|---|---|---|
| USER TYPE | # USERS | SYSTEM 1 | SYSTEM 2 |
| Low-end user | 8 million | 300 | 600 |
| High-end user | 2 million | 800 | 1200 |
The estimated production cost of System 1 is $200, and for System 2 is $400.
Determine the firm’s optimal course of action and pricing strategy.
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If only system 1 is offered If it is priced at 300 then all users 8 2 10 million would opt for it an...
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Fundamentals of Corporate Finance
Authors: Stephen A. Ross, Randolph W. Westerfield, Bradford D.Jordan
8th Edition
978-0073530628, 978-0077861629
