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bundling strategy for consumers

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Pepsi produces Fritos and Lays potato chips in addition to its basic soft-drink products. Discuss potential ways that this business combination might increase value. From an economic perspective why is such value increased in combinations like this? Can you think of other examples that have a similar bundling strategy for consumers?

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Business combinations can increase value in several ways. When one product is bundled with another it gives name recognition to both. In this case Pepsi is obviously a very well known product and is sold just about everywhere. When people see that it also produces Frito and lays potato ...

Solution Summary

Evaluate a bundling strategy for consumers.

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The average consumer at a firm with market power has an inverse demand function of P = 10 - Q. The firm's cost function is C = 2Q. If the firm engages in optimal two-part pricing, it will earn profits of

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Suppose three consumers of a new computer system have the following preferences for printers and ink, the prices in the columns represent the consumerâ??s reservation price:

Consumer Printer Ink
1 $400 $175
2 $350 $100
3 $300 $200

The firmâ??s costs are zero (for simplicity). If the manager knows the consumersâ?? preferences, what is the optimal pricing strategy?

printer $400, ink $100
printer $300, ink $175
bundle the printer and the ink at $500
bundle the printer and the ink at $450

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