DEMAND CURVE FOR INDUSTRIAL VERSION (WITH ONLY

ONE VERSION OFFERED)

500,000

50,000

40,000

30,000

20,000

10,000

$100 $300 $600 $1,000 $2,000 $3,000

SINGLE‐VERSION CASE
Unit Large, Corporate R&D Consultants and Small Students TOTAL NET
Contribution multidivisional and university professional businesses CONTRIBUTION
corporations laboratories companies
Segment Size 5,000 2,000 20,000 15,000 500,000
Segment Dev. Cost $150,000 $100,000 $200,000 $200,000 $300,000

"Student"
$100,000; $15
$200 $185 $3,500,000 $3,400,000
$175 $160 $3,000,000 $2,200,000 $5,100,000
$150 $135 $525,000 $2,500,000 $1,825,000 $4,750,000
$100 $85 $275,000 $70,000 $1,500,000 $1,075,000 $2,820,000
$50 $35 $25,000 ($30,000) $500,000 $325,000 $7,200,000 $7,950,000

"Commerical"
$200,000; $25
$1,200 $1,175 $5,725,000 $5,525,000
$1,000 $975 $4,725,000 $1,850,000 $6,375,000
$300 $275 $1,225,000 $450,000 $5,300,000 $6,775,000
$225 $200 $850,000 $300,000 $3,800,000 $2,800,000 $7,550,000
$60 $35 $25,000 ($30,000) $500,000 $325,000 $5,200,000 $5,850,000

"Industrial"
$500,000; $35
$2,500 $2,465 $12,175,000 $11,675,000
$2,000 $1,965 $9,675,000 $3,830,000 $13,005,000
$600 $565 $2,675,000 $1,030,000 $11,100,000 $14,305,000
$300 $265 $1,175,000 $430,000 $5,100,000 $3,775,000 $9,980,000
$100 $65 $175,000 $30,000 $1,100,000 $775,000 $12,200,000 $13,780,000
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 MULTI‐VERSION CASE: “STUDENT” AND “INDUSTRIAL”
Unit Large, Corporate R&D Consultants & Small Students TOTAL NET
contribution multidivisional & university professional businesses CONTRIBUTION
corporations laboratories companies
Segment Size 5,000 2,000 20,000 15,000 500,000
Segment Dev. Cost $150,000 $100,000 $200,000 $200,000 $300,000

Individual WTP
"Industrial" $2,500 $2,000 $600 $300 $100
"Student" $150 $100 $200 $175 $50

"Student"
$100,000; $15
$50 $35 ($30,000) $500,000 $325,000 $7,200,000 $7,925,000
$50 $35 $500,000 $325,000 $7,200,000 $7,925,000
$50 $35 $325,000 $7,200,000 $7,425,000
$50 $35 $7,200,000 $7,100,000

"Industrial"
$500,000; $35
$2,400 $2,365 $11,675,000 $11,175,000
$1,950 $1,915 $9,425,000 $3,730,000 $12,655,000
$450 $415 $1,925,000 $730,000 $8,100,000 $10,255,000
$175 $140 $550,000 $180,000 $2,600,000 $1,900,000 $4,730,000

"Student" at; Industrial" at

$50 $2400 $11,675,000 ($30,000) $500,000 $325,000 $7,200,000 $19,100,000

$50 $1950 $9,425,000 $3,730,000 $500,000 $325,000 $7,200,000 $20,580,000
$50 $450 $1,925,000 $730,000 $8,100,000 $325,000 $7,200,000 $17,680,000
$50 $175 $550,000 $180,000 $2,600,000 $1,900,000 $7,200,000 $11,830,000

TAKEAWAY FROM THIS CASE

 Single-version
o Price is optimized over the range of WTPs across segments
o Money left on the table – subsidizing some consumer segments
o Lost opportunity – leaving some segments out of the market

 Multi-version
o Decrease the two sources of lost revenue
 Potentially increase in profits
o Prices for high-end product are not optimized over WTPs of
segments for that high-end product (Incentive Compatibility)
o Price of high-end product increases compared with the single-
version case

 Benefits and costs of increasing product variety
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