Summary 113a. In the late 1980s and 1990s, Apple vigorously protected its proprietary
hardware and software and refused to license Mac clones. What effect
did this decision have on long-run demand?
b. In the early 1990s, Apple enjoyed high markups on its units. In 1995
Apple’s chief, John Sculley, insisted on keeping Mac’s gross profit
margin at 50 to 55 percent, even in the face of falling demand. (Gross
profit margin is measured as total revenue minus total variable costs
expressed as a percentage of total revenue.) At this time, the business
of selling PCs was becoming more and more “commodity-like.”
Indeed, the price elasticity facing a particular company was estimated
in the neighborhood of EP4. Using the markup rule of Equation
3.12, carefully assess Sculley’s strategy.
c. In the last decade, Apple has discontinued several of its lower-priced
models and has expanded its efforts in the education and desktop
publishing markets. In addition, recent software innovations allow
Macs to read most documents, data, and spreadsheets generated on
other PCs. Do these initiatives make sense? How will they affect
demand?- a. Triplecast was NBC’s and Cablevision’s joint venture to provide pay-
per-view cable coverage of the 1992 Summer Olympics in Barcelona.
Based on extensive surveys of potential demand, the partners hoped
to raise $250 million in revenue by attracting some 2 million
subscribers for three channels of nonstop Olympics coverage over
15 days. NBC set the average package price at $125 for complete
coverage and offered a separate price of $29.95 per day. However, as
the games began, fewer than 400,000 homes had subscribed.
i. In general, what goal should NBC follow in setting its program
prices? Explain.
ii. After experiencing the unexpectedly lukewarm response prior to
the games, what strategy would you recommend that NBC pursue?
b. In 1997, America Online (AOL) overhauled its pricing of Internet
access. Formerly, subscribers paid a monthly fee of $9.95 (good for a
limited number of access hours) and paid an additional fee for each
hour exceeding the limit. In a bid to increase its customer base, AOL
offered a new plan allowing unlimited access at a fixed monthly fee of
$19.95. (The company estimated that the new plan would deliver a
cheaper effective rate per hour for the vast majority of its current
customers.)
i. In terms of impact on revenue, what are the pros and cons of
AOL’s unlimited access pricing plan?
ii. What might the cost consequences be? - A New Hampshire resort offers year-round activities: in winter, skiing and
other cold-weather activities and, in summer, golf, tennis, and hiking.
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