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    Bundled Pricing for Cable

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    The reservation prices of three classes of demanders of the cable channels Lifetime, Disney, and ESPN are given below:

    Class Lifetime Disney ESPN
    30 Year Old Males $ 7 $1 $22
    30 Year Old Females $20 $10 $15
    7 to 12 year olds $ 3 $21 $12

    It costs $6 to produce and distribute each channel. The cable company can sell each separately, sell them as a bundle, or both.

    a. What bundling pricing strategy would you recommend?
    b. What would be the second best pricing policy?

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    https://brainmass.com/economics/short-and-long-run-cost-functions/bundled-pricing-for-cable-580818

    Solution Preview

    The reservation prices of three classes of demanders of Cable Channels Lifetime, Disney, and ESPN are given below:
    Class Lifetime Disney ESPN
    30 Year Old Males $ 7 $1 $22
    30 Year Old Females $20 $10 $15
    7 to 12 year olds $ 3 $21 $12
    It cost $6 to produce and distribute each Channel. The cable company can sell each separately, sell them as a bundle, or both.
    a. What bundling pricing strategy would you recommend?

    Pure Bundle - Price all three channels together
    Lifetime (L); Disney(D); ESPN (E)
    Assume 1 customer in each class
    Strategy 1:
    Minimum reservation price of all three classes
    Price (LDE) = $30
    All three classes will buy the bundle
    Profit = 3*(30-18)=$36

    Strategy 2:
    Minimum reservation price of 7 to 12 year old
    Price (LDE) = $36
    Females and children will buy the bundle
    Profit = 2*(36-18)=$36

    Strategy 3:
    Minimum reservation price of Females
    Price (LDE) = $45
    Only females will buy ...

    Solution Summary

    This solution shows how to select the best bundling strategy

    $2.19