Consider the optimal pricing policy of a monopolist selling information goods. There are three types of consumers, and there is one consumer of each type. The monopolist knows that there are three types of consumers and the valuations of each type (i.e. the tables below), but cannot tell to which type a consumer belongs (so that personalised pricing is impossible). As the products are in formation goods, marginal costs are zero, and fixed costs are already sunk. Assume throughout that, when a player is indifferent, she will choose the higher-priced bundle. There are three basic goods (products A, B and C), and the monopolist can choose which bundles of goods they want to offer, and the price of these bundles. The three types of consumers have valuations for the different products as given in the following table: (I.e.: If consumers are charged a price of 5 for product A, the type 1 consumer would buy this product as she achieves a surplus of 10 – 5 = 5. If, in addition, the consumers are charged a price of 120 for the bundle consisting of products A and B, then the type 1 consumer prefers to buy A on its own rather than the bundle consisting of A and B, as the surplus from A is 10 – 5 = 5, while the valuation of the bundle consisting of A and B is 10 + 60 = 70, i.e. below the price of 120. Assume that a consumer will buy a product (or a bundle of products) if she receives a surplus of 0, so the type 2 consumer would buy the bundle consisting of A and B at a price of 120.) Product A Product B Product C 1 consumer: 10 60 60 2 consumer: 60 60 80
Consider the optimal pricing policy of a monopolist selling information goods. There are three
types of consumers, and there is one consumer of each type. The monopolist knows that there are
three types of consumers and the valuations of each type (i.e. the tables below), but cannot tell to
which type a consumer belongs (so that personalised pricing is impossible). As the products are in
formation goods, marginal costs are zero, and fixed costs are already sunk. Assume throughout
that, when a player is indifferent, she will choose the higher-priced bundle.
There are three basic goods (products A, B and C), and the monopolist can choose which bundles of
goods they want to offer, and the
valuations for the different products as given in the following table:
(I.e.: If consumers are charged a price of 5 for product A, the type 1 consumer would buy this
product as she achieves a surplus of 10 – 5 = 5. If, in addition, the consumers are charged a price
of 120 for the bundle consisting of products A and B, then the type 1 consumer prefers to buy A
on its own rather than the bundle consisting of A and B, as the surplus from A is 10 – 5 = 5, while
the valuation of the bundle consisting of A and B is 10 + 60 = 70, i.e. below the price of 120. Assume that a consumer will buy a product (or a bundle of products) if she receives a surplus of 0,
so the type 2 consumer would buy the bundle consisting of A and B at a price of 120.)
Product A Product B Product C
1 consumer: 10 60 60
2 consumer: 60 60 80
3 consumer: 70 80 100
Depending on price, each consumer buys a product or a bundle of products. Consumers value a
bundle by the sum of their value for its components.
The monopolist can choose which bundles of products they want to offer, and the price of these
bundles. What bundles should the monopolist offer, and at what prices?
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