Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Soft selling occurs when a buyer is skeptical of the usefulness of a product and the seller offers to set a price that depends on

Soft selling occurs when a buyer is skeptical of the usefulness of a product and the seller offers to set a price that depends on realized value. For example, suppose a sales representative is trying to sell a company a new accounting system that will, with certainty, reduce costs by 20%. However, the customer has heard this claim before and believes there is only a 20% chance of actually realizing that cost reduction and a 80% chance of realizing no cost reduction.Assume the customer has an initial total cost of $200.

According to the customer's beliefs, the expected value of the accounting system, or the expected reduction in cost, is

.

Suppose the sales representative initially offers the accounting system to the customer for a price of $24.00.

The information asymmetry stems from the fact that the has less information about the efficacy of the accounting system than does the . At this price, the customer purchase the accounting system, since the expected value of the accounting system is than the price.

Instead of naming a price, suppose the sales representative offers to give the customer the product in exchange for 50% of the cost savings. If there is no reduction in cost for the customer, then the customer does not have to pay.

True or False: This pricing scheme worsens the problem of information asymmetry in this scenario.

True

False

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Principles Of Macroeconomics

Authors: N Gregory Mankiw

7th Edition

1285165918, 9781285165912

More Books

Students also viewed these Economics questions

Question

2. Develop a good and lasting relationship

Answered: 1 week ago

Question

1. Avoid conflicts in the relationship

Answered: 1 week ago