Question
At the time of writing, Amazon.com offered Prime, a bundle that includes free shipping on consumer purchases, discounts on groceries, as well as video, music,
At the time of writing, Amazon.com offered Prime, a bundle that includes free shipping on consumer purchases, discounts on groceries, as well as video, music, games, and books, at a price of US$119 per year. The price of the Harry Potter paperback box set was US$50.33 with free shipping.
- From the viewpoint of an Amazon Prime subscriber, compare the marginal cost of buying the Harry Potter box set from Amazon vis-à-vis a competing retailer that charges for shipping.
- Suppose that Amazon Prime subscribers are subject to the sunk-cost fallacy. How would that affect their demand to buy products from Amazon vis-à-vis competing retailers?
- By default, Amazon has set membership of Prime to automatically renew. This auto renewal takes advantage of a behavioral bias. Explain which one.
- Considering your answers to (a)–(c) above, explain how the Prime service gives Amazon an advantage over competitors.
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ANSWER Exlanation 1 If customers who have Amazon Prime are susceptible to the sunkcost fallacy then ...
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Advanced Accounting
Authors: Gail Fayerman
1st Canadian Edition
9781118774113, 1118774116, 111803791X, 978-1118037911
