Q1) Clever strategy firms with market power frequently use to extract consumer surplus is bundling. This involves selling two or more goods together. A good example to think about concerns season tickets to symphony. Assume, for sake of argument, that symphony plays three concerts in season, one which is all Beethoven, one all Handel, and one modern music concert, featuring the work of Penderecki.Imagine that there are a number of consumers who might buy tickets to these concerts. In particular, imagine that there are two seats which can be sold, and four consumers who might buy them.
Consumer 1 would pay $15 to hear Beethoven, $8 to hear Handel, and $0 to hear modern music concert.
Consumer 2 would pay $8 to hear Beethoven, $3 to hear Handel, and $6 to hear modern music concert.
Consumer 3 would pay $5 to hear Beethoven, $9 to hear Handel, and $12 to hear modern music concert.
Consumer 4 would pay $3 to hear Beethoven, $3 to hear Handel, and $3 to hear modern music concert.
a. If we charge different price for each individual concert, how much would we charge for Beethoven? Handel? Modern music concert?What would be our profit in this case?
b. If instead, we sold a season ticket to all three concerts, what would be (profit maximizing) price?What would be the profit in that case?
c. Can you think of even more profitable bundling strategy?