Skudge Inc. (A-D): Exercises in Price Bundling

by: Aradhna Krishna

Publication Date: September 6, 2018
Length: 8 pages
Product ID#: 7-009-594

Core Disciplines: Economics, Marketing/Sales

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Teaching Note

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Description

Skudge Inc. is a consulting firm specializing in food pricing with an emphasis on bundling. Students will follow Skudge founder Sid Kris Jorgenson as his firm determines what prices to charge to maximize profits for his clients. The exercises explain the difference between pure components, pure bundling, and mixed bundling models and how they can be applied to unique consumer segments with various reservation prices.

The exercise series is presented in four parts. Exercise A can be given to students before class, with Exercises B–D handed out sequentially during the instruction period. (Exercises B-D are separate documents and included as part of the teaching note.) Through this series of increasingly sophisticated exercises, students will gain a deep understanding of optimizing pricing and increasing profits through strategic bundling. Each consecutive exercise adds constraints to the bundling challenge, requiring students to construct increasingly complex algorithms.

Teaching Objectives

After reading and discussing the material, students should:

  • Understand when price bundling can increase revenues.
  • Pinpoint the difference between pure components, pure bundling, and mixed bundling models.
  • Explain how bundling relates to reservation prices and consumer surpluses.
  • Find the best pricing model for a given set of goods based on consumer segments and reservation prices.
  • Understand how variable costs affect price bundling.