You manage a cable company that offers 2 channels - NBC and Fox

Economics Oct 22, 2020

You manage a cable company that offers 2 channels - NBC and Fox. You face 2 types of customers (type A and type B) and there are 100 customers of each type. Their respective values for each channel are: Type A Type B NBC $10 $15 Fox $3 $7
If the marginal cost of selling each channel is $1 per channel, what is the most profitable strategy?
O sell the channels separately O bundle the channels O indifferent between selling separately and bundling the channels

Expert Solution

As consumers value NBC more than fox and type B consumers are willing to pay more than type A, thus, selling them separately will increase profits. So, The most profitable strategy would be to sell the channels separately.

This is a type of indirect price differentiation strategy.

The correct option is 1st "sells the channels separately".

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