9781118041581

396 Appendix to Chapter 9 Bundling and Tying

pay a higher (total) price than average users. Thus, the firm can effectively seg-

ment the market according to differing demands. Third, even if there are no

differences in buyers, tying presents the opportunity to gain a captive audience

of buyers for the complementary product. The result is relatively inelastic

demand and substantial price markups and profits for the firm. (For instance,

the average list price of an American-made automobile is about $18,000. But

the cost of buying all its parts separately, at replacement part prices, would be

over $50,000, even before assembly.) In some cases, a firm might well find it

advantageous to discount its main product (even price it below average cost)

in order to generate a customer base for highly profitable tie-in sales.

Problems

1. Peter’s Restaurant lists separate prices for all the items on its dinner
   menu. Chez Pierre offers only a fixed-price complete dinner (with
   patrons choosing from a list of appetizers, entrees, and desserts). Casa
   Pedro offers complete dinners at a fixed price and an à la carte menu.
   Under what different circumstances might these respective pricing
   schemes make economic sense? Explain briefly.
   *2. A firm sells two goods in a market consisting of three types of consumers.
   The accompanying table shows the values consumers place on the goods.
   The unit cost of producing each good is $10.

Good

Good X Good Y

A $8 $20

Consumers B 14 14

C 20 8

Find the optimal prices for (1) selling the goods separately, (2) pure

bundling, and (3) mixed bundling. Which pricing strategy is most

profitable?

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