Case Study #2/ Bundling
A company supplies two products,
Coffee Mugs and Tea Cups, to two different
segments of customers (A and B).
The following table summarizes the value that the
typical customer in each segment assigns to the products:
Customer Type Coffee Mugs Tea Cups
A $6 $8
B $7 $5
Assume that there are 10 customers of each type, the company does not have fixed costs, and that the marginal costs of producing
Coffee Mugs and Tea Cups are both constant at zero.
A. What is the pricing strategy for the company if it prices the products individually?
What is the corresponding profit?
B. If the company decides to offer
Coffee Mugs and Tea Cups in a bundle, what
price should it charge for the bundle? Is bundling a better strategy in this case? Why? Explain.