1. Within the three major market making mechanisms in online pricing, there is one, categorized as involving horizontal interactions among buyers and sellers. Discuss, with an example, a type of horizontal interaction involving a single seller and multiple buyers. Discuss a different type of online horizontal interaction with one buyer and multiple sellers, and provide an example of this as well.
2. The Hartford Museum of Art is staging a special art exhibition, in which two types of art, Impressionist art from the 19th century and Post-Modernist art from the 20th century are being shown. There will be two exhibitions shown simultaneously in two different parts of the building but the museum would like to charge a single price for people to view both of them. The museum has conducted research and found that the Post-Modern art appeals to a younger segment of viewers, who are willing to pay up to $5 to see it. Impressionist art being more popular in general the younger segment is willing to pay up to $6 to view it. An older segment of people has a reservation price of $2.50 for the Post-Modern art but is willing to pay up to $7.50 for the Impressionist art. How should museum price the two exhibitions as a single show, so that it maximizes its revenue? Provide a dollar number and explain how you arrived at it. Assume the size of both segments is the same (assume 1 person in each segment). What segmented pricing strategy is this and what is the main reason why it works?
3. Explain in detail how the relative strength of the innovation effect compared to the imitation effect (Bass diffusion model) can be used to determine whether a new product pricing strategy of penetration or skimming is more appropriate.
4. Immediately after they implement a price increase for the coffee cups (K-cups) used in the Keurig coffee machine, the Keurig brand does not experience any decline in coffee cup sales. However, after a couple of months, they notice a sharp drop in sales. What do we call this price-related phenomenon? Explain why is happens in this specific case using two of the nine factors, which influence price elasticity of demand.