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Practice of Bundling Golf Option with Luxury Option

Need help on an optimal bundling strategy for the golf, luxury, and family options. Discuss profits under each alternative.

To: Corporate Strategy Analyst
From: Marketing Department
Subject: Customer Demand for Blue Jet

The marketing department has extensively researched the habits of Blue Jet customers.
We will send you a spreadsheet that contains demand data on consumer maximum willingness to pay (reservation prices) for two sets of packages:

(1) Bundles at Odyssey Isle for golf, luxury, and family options.
(2) The Big Apple Platinum package.


Solution Preview

What happens if the seller aggregates the two goods and sells them as a bundle? Some consumers -those who valued both goods at one dollar- will be willing to pay two dollars for the bundle, while others -those who valued both goods at almost zero- would not be willing to pay even a penny. The total area under the demand curve for the bundle, and hence the total potential surplus, is exactly equal to the sum of the areas under the separate demand curves. However, most interestingly, bundling changes the shape of the demand curve, making it flatter (more elastic) in the neighborhood of one dollar and steeper (less elastic) near either extreme, as shown in the plots of reservation prices for golf and luxury goods. As more goods are added, this effect becomes more pronounced.
A profit-maximizing firm selling a bundle of 2 goods luxury and golf will set the price slightly below the mean value of the bundle of $250 each that is little less than $500, and almost all consumers will find it worthwhile to purchase the bundle. In contrast, only half the consumers would have purchased the goods if they had been individually sold at the profit-maximizing price $250(there is insufficient data to determine the individual profit maximizing price), so selling the goods as a bundle leads to a smaller deadweight loss and greater economic efficiency. This is the theory, in practice what I did was that I added the luxury and golf column in the spread sheet and pasted it in column E, then I added the data for the 100 items and divided it by 100, ...

Solution Summary

Optimal bundling strategy for the golf, luxury, and family options is presented.