6. 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 20%. However, the customer has heard this claim before and believes there is only a 20% chance of actually realizing that cost reduction and a 80% chance of realizing no cost reduction. Assume the customer has an initial total cost of $400. 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 $48.00. The information asymmetry stems from the fact that the than does the accounting system is At this price, the customer than the price. has less 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. True or False: This pricing scheme alleviates some of the information asymmetry that is present in this scenario. O True O False
6. 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 20%. However, the customer has heard this claim before and believes there is only a 20% chance of actually realizing that cost reduction and a 80% chance of realizing no cost reduction. Assume the customer has an initial total cost of $400. 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 $48.00. The information asymmetry stems from the fact that the than does the accounting system is At this price, the customer than the price. has less 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. True or False: This pricing scheme alleviates some of the information asymmetry that is present in this scenario. O True O False
Chapter1: Making Economics Decisions
Section: Chapter Questions
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Transcribed Image Text:6. 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 20%. However,
the customer has heard this claim before and believes there is only a 20% chance of actually realizing that cost reduction and a 80% chance of
realizing no cost reduction.
Assume the customer has an initial total cost of $400.
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 $48.00.
The information asymmetry stems from the fact that the
than does the
accounting system is
At this price, the customer
than the price.
has less 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.
True or False: This pricing scheme alleviates some of the information asymmetry that is present in this scenario.
O True
O False
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