Bundled Pricing

Discipline: Business Finance - Economics
  1. Instructions

    Step 1 
    Prepare the date – Replace all bundle prices (highlighted in YELLOW) on the Analysis tab of the working sheet — “Bundling – PSet1 – Part 2” — by following these steps:

    1. Go to WTP tab and look for the row with total willingness to pay for each bundle (row 103, Bundle WTP).
    2. Add a new sheet/tab and use Excel’s transpose function to copy/paste these values in a vertical array. Copy this array and paste ‘values only’ in a separate column. Sort this column from smallest to largest values. Copy/paste the sorted values in Analysis tab to replace the bundle prices.
    3. Observe the new Bundle Demand and Bundle Profit curves.
    4. Step 2
      For students in EU: You may need to change an Excel setting so all periods ‘.’ do not get changed to commas ‘,’. This may be the case for both Windows (see the adjacent cell) and Macintosh users. See instructions below to avoid this problem. (https://resrequest.helpspot.com/index.php?pg=kb.page&id=277). Instructions about how to change column labels from numbers to letters: 
    5. Select the File tab in the toolbar at the top of the screen
    6. Click on Options in the menu
    7. This will pop open the Excel Options window, click on the Formulas option on the left
    8. Uncheck the option called “R1C1 reference style”
    9. Click on the OK button to save changes
    10. Step 3
      In the Analysis tab, calculate the empty cells highlighted in YELLOW to answer the Part 2 questions below.
    • Hint: Do not forget that you have other tabs to utilize for this assignment. Review the prompts and formulas available in the spreadsheet as you work through each question. 
    • For numeric values, you should enter up to 2 decimal places. Follow the format exactly as given. No exception will be allowed for typo mistakes.
    • Using the numbers created in your “Bundling – PSet1 – Part 2” Excel spreadsheet, answer the following questions. 
  2. What is the optimal price of a bundle? (Format as $0.00) Blank 1
    • Blank 1
  3. What are the maximum profits of the firm? (Format as $0.00) Blank 1
    • Blank 1
  4. How much consumer surplus do consumers keep? (Format as $0.00) Blank 1
    • Blank 1
  5. At this price, what proportion of songs with positive value are not sold? (Format as 0.00%) Blank 1
    • Blank 1
  6. Do any consumers’ bundles include songs that they did NOT rate?
    1. Yes
    2. No
    3. Not enough information
  7. How much social value is not created? (Format as $0.00) Blank 1
    • Blank 1
  8. Total sales have increased, but does this mean total surplus kept by consumers has also increased?  
    1. No. An even higher proportion of consumer surplus has been transferred to the seller. 
    2. No. Consumers keep none of their surplus. 
    3. Yes. Because sales increase, consumer surplus also increases. 
    4. Yes. Because the seller has captured less surplus . 
  9. What other change should be made to the original pricing strategy if the MC of each good is MC=$0.12 rather than MC=$0? 
    1. Return to independent good pricing 
    2. Drop all items with WTP < $0.12 from each person’s individual bundle 
    3. Raise bundle price by $0.12 
    4. No change, keep as-is  
  10. o upload your Excel Spreadsheet — “Bundling – PSet1 – Part 2”. You are not required to type into the open field (skip it).

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