Suppose a music industry producer just finished producing two compilation CDs of music from the '70s. One disk is pop music; the other disk is disco music. Suppose also that he estimates the market to be evenly segmented into two types of customers. He estimates valuations for each type of customer as follows. Disk 1 Disk 2

Type A 10. 2 Type B 9. 3 The marginal cost of the disks is zero. (a) If the producer wants to sell the disks individually, what prices should he set? (b) Can the producer do better with bundling? Explain. (c) Would it be better to mix the content of the disks and obtain two pop/disco disks of music from the '70s?

Suppose now that the estimated evaluations are instead: Disk 1 Disk 2

Type A 10. 3 Type B 9. 2

(d) Does pure bundling make sense in this case? Explain the difference between the two demand profiles.