Market research has identified three different types of consumers based on survey data. The following schedule gives the reservation prices of these customers for the two most popular products you sell.
Assume that there is one customer per “Customer Type”.
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Customer Type Product 1 Product 2
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1 $40 $ 100
2 60 60
3 100 40
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The marginal cost is $45 per product.
Find the profits from pure bundling. You are worried about customer types 1 and 3, since their valuation for some of the products are low compared to the marginal costs of production.
Would it be better for you to sell the products separately (not offer a bundle at all) compared to pure bundling? How would you price the products?
Can you use a “mixed bundling” strategy effectively to enhance profits in this market, given the information on costs and customer preferences? Explain how you would structure it, pointing out its limitations (if any).