Case Study #2/ Bundling

A company supplies two products,

Coffee Mugs and Tea Cups, to two different

segments of customers (A and B).

The following table summarizes the value that the

typical customer in each segment assigns to the products:

Customer Type   Coffee Mugs Tea Cups

A                                 $6              $8

B                                 $7              $5

Assume that there are 10 customers of each type, the company does not have fixed costs, and that the marginal costs of producing

Coffee Mugs and Tea Cups are both constant at zero.

A. What is the pricing strategy for the company if it prices the products individually?

What is the corresponding profit?

B. If the company decides to offer

Coffee Mugs and Tea Cups in a bundle, what

price should it charge for the bundle? Is bundling a better strategy in this case? Why? Explain.