solution

The University of Pennsylvania basketball team will play both the University

of Kansas and Nowhere University this year on Penn’s campus. Kansas is a

nationally ranked team, while Nowhere is just plain terrible.

The athletic director traditionally prices each game separately. You

approach him and point out that two other pricing options exist. One possibility

is to offer a pure bundle, that is, a ticket package containing one Kansas

ticket and one Nowhere ticket. The second possibility is a mixed bundle. In this

situation, a pure bundle is offered but admissions to the games can also be sold

separately. It costs Penn a constant 5 per spectator to produce a game. It would

cost Penn 10 to produce a bundle of a Kansas game and a Nowhere game.

Three types of potential spectators exist (A, B, and C). There are an equal

number of types (for simplicity, assume one of each type). Their reservation

prices for each game are shown below:

Penn’s policy is not to price discriminate. A spectator’s reservation price for a

bundle of the two games is the sum of their reservation prices for each game.

A spectator wants (at most) one admission to each game.

What’s your pricing advice to the athletic director (so that the director

maximizes Penn’s profit)? b. Given the current pricing policy of Penn, what’s your advice worth to the athletic director?