Answered: Odeon Decision Offertopay $30 or $40…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Question

Rainbow Writer (RW) is a small online company selling a highly rated software package for printing color labels directly onto CDs. The firm currently earns a profit of $2 million per year selling its package exclusively on its Web site. Odeon, the producer of the most popular software package for editing and burning CDs and DVDs has expressed interest in bundling Rainbow Writer's product into its own package. Odeon expects that bundling would further boost its sales and allow it to sell the new bundled product at a higher price, thus raising its profits beyond its current profit of $12 million. Figure 14.3 shows the decision tree for the Rainbow Writer-Odeon bargaining game. Refer to Figure 14-3. What is the equilibrium outcome in this game and is this a subgame-perfect equilibrium? Group of answer choices Odeon's offer of $40 per copy of the software package is accepted and this is a subgame-perfect equilibrium. In the equilibrium, Odeon offers $40 per copy of the software package and is accepted but this is not a subgame-perfect equilibrium. In the equilibrium, Odeon offers $30 per copy of the software package and is rejected, and this is a subgame-perfect equilibrium. There is no equilibrium in this game. The Rainbow Writer - Odeon Bargaining Game