Question
The reservation prices (in dollars) of three classes of demanders (classes A, B, and C) for Gabriel (a Brasilian rock singer) compact disks are given
The reservation prices (in dollars) of three classes of demanders (classes A, B, and C) for Gabriel (a Brasilian rock singer) compact disks are given in the table that follows:
Class | CD 1 | CD 2 |
A | 11 | 5 |
B | 5 | 12 |
C | 9 | 10 |
It costs $4 to produce and distribute each compact disk. The company can sell each CD separately, can put them together as a boxed set (that is, as a pure bundle), or can sell them in a mixed bundling format (offer the CDs both separately and as a boxed set). Assume that each demander wants only one of each of the CDs at the reservation price (or at any lower price) and that there are an equal number of demanders in each class. For simplicity, assume that the only costs are those mentioned here.
a. What pricing method would you advise Gabriel company to use? (Be sure to show your work).
b. How much better (profitwise) is the best pricing method than the second most profitable pricing method?
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