ECO 550: Managerial Economics and Globalization (MidTerm Problem Sets)

 

Explain the difference in the profit realized under the two situations (the price in each market or in the two markets combined.)

Make sure you include the profit with and without price discrimination  in your answer.

 

Time Warner could offer the History Channel (H) and Showtime (S) individually or as a bundle of both.

Suppose the reservation prices of customers 1 and 2 (the highest prices they are willing to pay) are presented in the boxes below.

The cost to Time Warner is $1 per customer for licensing fees.

Preferences

Showtime

History Chanel

Customer 1

9

2

Customer 2

3

8

Should Time Warner bundle or sell separately?  Your answer needs to include the unbundled and bundled profits. 

 

Suppose Time Warner could sell Showtime for $9, and History channel for $8, while making Showtime-History bundle available for $13. Should it use mixed bundling. i.e., sells products both separately and as a bundle? 

Your answer must include the profit with mixed bundling.