Managerial Economics:

Case:

For many years, Britannica was regarded as the standard reference encyclopedia. Its 32- volume set was sold at $1,600 in as recent as in early 1990s. In 1992, however, Microsoft entered the business by acquiring the rights to Funk & Wagnall and using its content to create a CD encyclopedia called Encarta. The initial list price for Encarta was $49.95, and the actual price was much lower for computer manufacturers who included Encarta in the computers they sold. Britannica saw its market eroded, with sales in 1996 being reduced to half of that in 1990. In 1996, a CD edition of Britannica was offered at $200. By October 15, 2001, the list price for the CD edition of Britannica was $49.95, and that of Britannica's 32-volume was $1,295. Meanwhile, Encarta 2002 version is available at $74.95.

Questions

a. Are the Britannica on paper and the Britannica on CD close substitutes? What about the Britannica on CD and the Encarta on CD?

b. What would you have done differently if you were at the helm of Britannica?