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Pricing commonly owned complementary products

Pricing Commonly Owned Complementary Products:

You are a hospital administrator trying to raise capital to refurbish the hospital. Your local bank is reluctant to lend to you because you already have a large mortgage on the property on which the hospital complex lies. But your bankers tells you that they can lend you more if you reduce your debt by selling your parking lot to some private investors who'll lease it back to you for the next 50 years. And you'll have to renegotiate the price of the lease every 5 years. What concerns might you have about this sales-and lease-back contract?

Yield or Revenue Management 2:

Suppose your elasticity of demand for your parking lot spaces is -0.5, and price is $20 per day. If your MC is zero, and your capacity at 9 A.M. is 96% full over last month, are you optimizing?

Yield or Revenue Management 3:

Suppose your parking lot has two different consumers who use it at two different times. Daily commuters use it during the daytime, and sports fans use it at different times to park at sporting events. Daily commuter demand is variable, yet stable and known. Demand for sporting events is uncertain, and depends on the quality of the match, as well as on unpredictable events, like the weather. How would you price these two events differently?

Inter-temporal Price Discrimination:

Suppose that technophiles are willing to pay $400 now for the latest iPhone, but only $300 if they have to wait a year. Normal people are willing to pay $250, and their desire to purchase does not vary with time. Ignore the time value of money and compute the optima pricing scheme of the iPhone. Assume that there are equal numbers of each customer type, and that the MC of the iPhone is $100

Solution Preview

Pricing commonly owned complementary products:

The main concern in this sales and lease back contract is in comparing the mortgage costs against lease costs. While the mortgage costs over the life of the mortgage is known, the lease payments are unpredictable since they will be changing every five years. At each five year period the hospital may have to be borrowing money in order to lease the parking lot again or just have to release it. Taking into account that the parking lot is a complementary product to the services of the hospital, while the hospital still owns the parking lot, it can be able to set the price of the parking lot and hospital services can be marginally set to increase hospital profits, but if the hospital sells and leases it back, the pricing of the parking lot will be determined by how much the lease costs and cannot be reduced beyond a certain level. In fact it may raise the price of parking lot which in turn output of the parking lot and in turn also reduce demand in the complement hospital services. By retaining it the hospital can though reduce prices of both without going at a loss since a more marginally reduced parking service to clients would result to increased clients in the hospital which would increase profitability of the hospital due to increased marginal revenue. This can put the hospital at a good position to ...

Solution Summary

Pricing commonly owned complementary products is clarified in this solution.

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