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 50% chance of actually realizing that cost reduction and a 50% 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 $30.00.

The information asymmetry stems from the fact that the sales representative/buyerhas less information about the efficacy of the accounting system than does the sales representative/buyer. At this price, the customer will not/willpurchase the accounting system, since the expected value of the accounting system is less/greaterthan 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 alleviates some of the information asymmetry that is present in this scenario.

True

False