5. Individual Problems 19-5 Soft selling occurs when a buyer is skeptical of the usefulness of a product and the seller offers to set a price that depends on realized value. For example, suppose sales representative is trying to sell a company a new accounting system that will, with certainty, reduce costs by 10%. However, the customer has heard this claim before and believes there is only a 50% chance of actually realizing that cost reduction and a 50% chance of realizing no cost reduction. Assume the customer has an initial total cost of $900. According to the customer's beliefs, the expected value of the accounting system, or the expected reduction in cost, is $ Suppose the sales representative initially offers the accounting system to the customer for a price of $67.50. The information asymmetry stems from the fact that the than does the accounting system is ▼. At this price, the customer than the price. has more information about the efficacy of the accounting system purchase the accounting system, since the expected value of the Instead of naming a price, suppose the sales representative offers to give the customer the product in exchange for 50% of the cost savings. If there is no reduction in cost for the customer, then the customer does not have to pay. O True True or False: This pricing scheme alleviates some of the information asymmetry that is present in this scenario.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Economics

The information asymmetry stems from the fact that the SALES REPRESENTATIVE/BUYER has more information about the efficacy of the accounting system than does the SALES REPRESENTATIVE/BUYER . At this price, the customer Will/Will Not purchase the accounting system, since the expected value of the accounting system is Less/Greater than the price.

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5. Individual Problems 19-5
Soft selling occurs when a buyer is skeptical of the usefulness of a product and the seller offers to set a price that depends on realized value. For
example, suppose a sales representative is trying to sell a company a new accounting system that will, with certainty, reduce costs by 10%. However,
the customer has heard this claim before and believes there is only a 50% chance of actually realizing that cost reduction and a 50% chance of
realizing no cost reduction.
Assume the customer has an initial total cost of $900.
According to the customer's beliefs, the expected value of the accounting system, or the expected reduction in cost, is $
Suppose the sales representative initially offers the accounting system to the customer for a price of $67.50.
The information asymmetry stems from the fact that the
than does the
accounting system is
. At this price, the customer
than the price.
Instead of naming a price, suppose the sales representative offers to give the customer the product in exchange for 50% of the cost savings. If there
is no reduction in cost for the customer, then the customer does not have to pay.
O True
has more information about the efficacy of the accounting system
▼purchase the accounting system, since the expected value of the
True or False: This pricing scheme alleviates some of the information asymmetry that is present in this scenario.
O False

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