Problem

1. A) Mindbender Technologies is deciding between developing complicated, thought-activated software, or simple, voice-activated software. The voice-activated software would cost $50 million to develop and has a 70% chance of being successfully launched and generating revenue of $110 million. The thought-activated software would be a bonanza if successful, generating $1.4 billion in revenue. But it is so complicated, it is projected to cost would be $700 million. How likely would success have to be for Transcendent Technologies to opt for the thought-activated software?

B) What are the potential downsides of the decision process used in A?

2) Describe price discrimination and create and explain a numeric example of how profitability could be increased with it. Next, explain the potential risks of price discrimination.

3) What is the Winner's Curse? Provide an example of how it could occur during competitive bidding and another example of how to minimize the chance of it happening. Clearly explain the difference between the two.