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Companies Cooperating to Price Products

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The Long-Drive Golf Company manufactures a new line of golf clubs. The Cushion Bag Company makes a special golf bag that protects the delicate shifts on these clubs. The respective prices are Pc and Pb for the clubs and bags. The marginal cost for producing either product is 100. Demand for each product is
Q = 1000 - (Pc + Pb) when Pc + Pb is 1,000 or less, 0, otherwise

How will the two companies price the products if they do not cooperate? What are the resulting quantities and profits? What are the prices, quantities, and profits if the two companies price cooperatively? Explain why there is a difference.

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Solution Summary

This solution explains how the two companies price their products if they do not cooperate and the associated results in quantities and profits in a worked example of the Long-Drive Golf Company.

Solution provided by:
Manal Elkhoshkhany, MBA
Education
  • BA, Ain Shams University, Cairo Egypt
  • MBA, California State University, Sacramento
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