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 10% chance of actually realizing that cost reduction and a 90% chance of realizing no cost reduction. Assume the customer has an initial total cost of $100. 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 $11.00. The information asymmetry stems from the fact that the has less information about the efficacy of the accounting system . At this price, the customer than does the purchase the accounting system, since the expected value of the accounting system is 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. True or False: This pricing scheme worsens the problem of information asymmetry in this scenario. True False
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 10% chance of actually realizing that cost reduction and a 90% chance of realizing no cost reduction. Assume the customer has an initial total cost of $100. 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 $11.00. The information asymmetry stems from the fact that the has less information about the efficacy of the accounting system . At this price, the customer than does the purchase the accounting system, since the expected value of the accounting system is 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. True or False: This pricing scheme worsens the problem of information asymmetry in this scenario. True False
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Transcribed Image Text: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 20%. However,
the customer has heard this claim before and believes there is only a 10% chance of actually realizing that cost reduction and a 90% chance of
realizing no cost reduction.
Assume the customer has an initial total cost of $100.
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 $11.00.
The information asymmetry stems from the fact that the
than does the
has less information about the efficacy of the accounting system
. At this price, the customer
purchase the accounting system, since the expected value of the
accounting system is
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.
True or False: This pricing scheme worsens the problem of information asymmetry in this scenario.
True
O False
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