Your company sells a project management software product aimed at the European market and billed as an analytics-based risk mitigation solution. It is available in base- and high-quality versions called Pura Suerte and Gran Suerte, respectively. Each potential buyer is interested in buying one unit of the Suerte software (either Pura Suerte or Gran Suerte but not both).

Through marketing research, you learned about the potential buyers' willingness to pay (WTP) for each version of your product. There are an equal number of potential buyers of Type A and Type B, so for simplicity we will consider there to be a single Type A buyer and a single Type B buyer.

Since development costs are sunk, your objective is to maximize the total revenue from selling the software. You do not know the WTP of any individual buyer, so you must post one price for Pura Suerte and another price for Gran Suerte. Buyers see the prices and may choose to: 1) buy Pura Suerte; or 2) buy Gran Suerte; or 3) buy neither, whichever decision maximizes their consumer surplus.

Unfortunately, your market research left some uncertainty in the estimated WTP.

Scenario 1: High valuation for high-quality version

Potential Customers' WTP
	Pura Suerte	Gran Suerte
WTP of type-A buyer	1250	2500
WTP of type-B buyer	0750	1000

1. If you only sell one version, Gran Suerte, what is the optimal price? Given this price, which buyer(s) would buy, and what is your revenue?

The optimal price for Gran Suerte should be kept as 2500 and the buyer A will buy this version so the revenue will be 3750.

The optimal price for Grand Suerte should be kept as 1000 and for Pura Suerte it should be anything above 2500 so that max revenue could be generated.

1. If you sell both versions, Pura Suerte and Gran Suerte, what is the optimal price for each? Given these prices, which buyer would buy which version, and what is your optimal revenue?

The optimal price for Grand Suerte should be kept 1000 and the buyer A will buy because it will be cost effective for him and for Pura Suerte the price should kept anything above 2500 so that the maximum revenue of 3750 could be achieved.

1. Is it optimal to sell both versions in this scenario?

Yes, it will be optimal to sell both versions at optimal price so that profit will be maximized.

Scenario 2: Low valuation for high-quality version

Potential Customers' WTP
	Pura Suerte	Gran Suerte
WTP of type-A buyer	1250	1600
WTP of type-B buyer	0750	1000

d) If you only sell one version, Gran Suerte, what is the optimal price? Given this price, which buyer(s) would buy, and what is your revenue?

e) If you sell both versions, Pura Suerte and Gran Suerte, what is the optimal price for each? Given these prices, which buyer would buy which version, and what is your optimal revenue?

f) Is it optimal to sell both versions in this scenario?

Integration: Decision-making under uncertainty

Leadership wants you to employ max-min criteria for pricing. That is, they want you to choose pricing based on its performance in its worst-case. The worst-case scenario is that you chose pricing for one scenario, but real WTP turns out to match the other scenario.

g) Given the optimal pricing from Scenario 1, who would buy what, and what would revenue be if WTP was actually consistent with Scenario 2?

h) Given the optimal pricing from Scenario 2, who would buy what, and what would revenue be if WTP was actually consistent with Scenario 1?

i) Which set of prices meets the max-min criteria?