The table below shows willingness of three eBay customers (A, B and C) to pay for two goods: tickets to the Canada vs. USA gold medal hockey game, and a #87 Team Canada hockey jersey. The seller, Ryan Miller's mom (who is a monopolist, at least with respect to these consumers, and can "produce" enough quantity to meet demand), has to determine her pricing strategy, and whether to sell the goods separately or as a bundle. Her marginal cost is Cg = 90 for the tickets and Cj = 100 for the jersey.
Consumer WTP for Game WTP for Jersey WTP for Both
A 80 130 210
B 120 110 230
C 125 80 205
a) If Miller's mom sells the tickets and jerseys separately, what (monopolist) prices would she set for each good? What are her total profits?
b) Miller's mom took IO as an undergraduate, and realizes that she may be able to increase her profits by offering the tickets and jersey as a bundle. If she offers only a pure bundle price, PB, what would she charge? What would each consumer do, and what would be her profits?
c) Now suppose that she wonders whether a mixed bundling strategy can do even better. If she offers the pure bundle at the price from (b), and the goods separately at prices from (a), what would each consumer choose? What would be Miller's mom's profits?
d) Can she set prices to earn even higher profit? If so, what prices will she set and how much profit will she earn? If not, explain why not.