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 40% chance of actually realizing that cost reduction and a 60% chance of realizing no cost reduction. Assume the customer has an initial total cost of $800. 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 $56.00. The Information asymmetry stems from the fact that the has more Information about the efficacy of the accounting purchase the accounting system, since the expected system than does the . At this price, the customer than the price. value of the accounting system is 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. 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 10%. However, the customer has heard this claim before and believes there is only a 40% chance of actually realizing that cost reduction and a 60% chance of realizing no cost reduction. Assume the customer has an initial total cost of $800. 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 $56.00. The Information asymmetry stems from the fact that the has more Information about the efficacy of the accounting purchase the accounting system, since the expected system than does the . At this price, the customer than the price. value of the accounting system is 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. True False
Chapter7: Uncertainty
Section: Chapter Questions
Problem 7.7P
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Transcribed Image Text: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 40% chance of actually realizing that cost reduction and a 60% chance of
realizing no cost reduction.
Assume the customer has an initial total cost of $800.
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 $56.00.
The Information asymmetry stems from the fact that the
has more Information about the efficacy of the accounting
purchase the accounting system, since the expected
system than does the
. At this price, the customer
than the price.
value of the accounting system is
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.
True
False
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