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Figure 14-4 Rainbow Writer (RW) is a small online company selling a highly rated software package for printing color labels directly onto CDs. The firm
Figure 14-4 Rainbow Writer (RW) is a small online company selling a highly rated software package for printing color labels directly onto CDs. The firm currently earns a profit of $2 million per year selling its package exclusively on its Web site. Odeon, the producer of the most popular software package for editing and burning CDs and DVDs, has expressed interest in bundling Rainbow Writer's product into its own package. Odeon expects that bundling would further boost its sales and allow it to sell the new bundled product at a higher price, thus raising its profits beyond its current profit of $12 million. Figure 144 shows the decision tree for the Rainbow Writer-Odeon bargaining game. Refer to Figure 14-4. What is the equilibrium outcome in this game? In the equilibrium, Odeon offers $30 per copy of the software package and Rainbow Writer accepts. Either offer of $30 or $40 per copy of the software package is accepted. In the equilibrium, Odeon offers $40 per copy of the software package and Rainbow Writer accepts. In the equilibrium, neither offer is accepted as Rainbow Writer holds out for a better deal
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