A monopolist selling several different products can sometimes "price discriminate" by bundling products together. Here's an example.
Suppose the university is planning to offer a series of two concerts. The first program in the series consists of music by Chopin; the second, music by Stravinsky. There are four types of patrons with the following reservation prices for the concerts:
Romantic Type: $40 for Chopin, $20 for Stravinsky
Modern Type: $20 for Chopin, $40 for Stravinsky
Chopin Lover: $45 for Chopin, $5 for Stravinsky
Stravinsky Lover: $5 for Chopin, $45 for Stravinsky
Suppose for simplicity that there is only one individual of each type and everyone can be accommodated at either performance. Also suppose the university knows the distribution of types, but not any individual's given type.
a) Suppose first that separate tickets are oered for the two concerts. What is the profit maximizing price per ticket?
b) Suppose that only a single ticket for the series is oered. What is the profit maximizing price for a series ticket? Have profits increased? What is the intuition for this result?
c) Can you find a more profitable alternative?