Excercise Sheet Bundling + Network effects

Question 1

Utility premium users

Answer 1

U = (1+2*o) * v(q) - p, if buy
= v(q), if free
= 0, if not use at all

Question 2

When would premium users use the free version?

Answer 2

when
(1+2*o) * v(q) - p < v(q)

or even easier when

(1+2*o) * v(q) - p < 0

-> negative utility!

Question 3

how do you calculate the profit?

Answer 3

pie = #premium users * price

Question 4

What’s the minimum price the company could set?

Answer 4

Minimum price so that premium users would still buy instead of using the free version:

(1+2*o) * v(q) - p < v(q)

solve for p with q = all potential users= free version users + potential premium version users