solution

The reservation prices (in dollars) of three classes of demanders (classes A, B,

and C) for Ricky Parton’s (a Latin country-western singer) compact discs are

given in the table that follows:

It costs $4 to produce and distribute each compact disc. The company can sell

each CD separately, can put them together as a boxed set (that is, as a pure

bundle), or can sell them in a mixed bundling format (offer the CDs both

separately and as a boxed set). Assume that each demander wants only one of

each of the CDs at the reservation price (or at any lower price) and that there

are an equal number of demanders in each class. For simplicity, assume that

the only costs are those mentioned here.

a. What pricing method would you advise Ricky’s company to use?

b. How much better (profitwise) is the best pricing method than the second

most profitable pricing method?