DEMAND CURVE FOR INDUSTRIAL VERSION (WITH ONLY

ONE VERSION OFFERED)

500,000

50,000
40,000
30,000
20,000
10,000

$100 $300 $600

$1,000

$3,000

$2,000

SINGLEVERSION CASE
Unit
Large,
Corporate R&D Consultants and Small
Contribution multidivisional and university professional
businesses
corporations
laboratories
companies
Segment Size
5,000
2,000
20,000
15,000
Segment Dev. Cost
$150,000
$100,000
$200,000
$200,000

"Student"
$100,000; $15
$200
$175
$150
$100
$50
"Commerical"
$200,000; $25
$1,200
$1,000
$300
$225
$60
"Industrial"
$500,000; $35
$2,500
$2,000
$600
$300
$100

$185
$160
$135
$85
$35

$1,175
$975
$275
$200
$35

$2,465
$1,965
$565
$265
$65

$525,000
$275,000
$25,000

$70,000
($30,000)

$5,725,000
$4,725,000
$1,225,000
$850,000
$25,000

$1,850,000
$450,000
$300,000
($30,000)

$12,175,000
$9,675,000
$2,675,000
$1,175,000
$175,000

$3,830,000
$1,030,000
$430,000
$30,000

$3,500,000
$3,000,000
$2,500,000
$1,500,000
$500,000

$5,300,000
$3,800,000
$500,000

$11,100,000
$5,100,000
$1,100,000

$2,200,000
$1,825,000
$1,075,000
$325,000

$2,800,000
$325,000

$3,775,000
$775,000

Students

TOTAL NET
CONTRIBUTION

500,000
$300,000

$7,200,000

$3,400,000
$5,100,000
$4,750,000
$2,820,000
$7,950,000

$5,200,000

$5,525,000
$6,375,000
$6,775,000
$7,550,000
$5,850,000

$12,200,000

$11,675,000
$13,005,000
$14,305,000
$9,980,000
$13,780,000

MULTIVERSION CASE:STUDENTAND INDUSTRIAL

Unit
contribution

Large,
Corporate R&D Consultants &
multidivisional & university
professional
corporations
laboratories
companies
5,000
2,000
20,000
$150,000
$100,000
$200,000

Segment Size
Segment Dev. Cost
Individual WTP
"Industrial"
"Student"

$2,500
$150

"Student"
$100,000; $15
$50
$50
$50
$50

$35
$35
$35
$35

"Industrial"
$500,000; $35
$2,400
$1,950
$450
$175

$2,365
$1,915
$415
$140

$2,000
$100

$600
$200

($30,000)

$500,000
$500,000

Small
businesses

Students

15,000
$200,000

500,000
$300,000

$300
$175

$100
$50

$325,000
$325,000
$325,000

$11,675,000
$9,425,000
$1,925,000
$550,000

$3,730,000
$730,000
$180,000

$8,100,000
$2,600,000

$1,900,000

$11,675,000
$9,425,000
$1,925,000
$550,000

($30,000)
$3,730,000
$730,000
$180,000

$500,000
$500,000
$8,100,000
$2,600,000

$325,000
$325,000
$325,000
$1,900,000

TOTAL NET
CONTRIBUTION

$7,200,000
$7,200,000
$7,200,000
$7,200,000

$7,925,000
$7,925,000
$7,425,000
$7,100,000

$11,175,000
$12,655,000
$10,255,000
$4,730,000

"Student" at; Industrial" at

$50
$50
$50
$50

$2400
$1950
$450
$175

$7,200,000
$7,200,000
$7,200,000
$7,200,000

$19,100,000
$20,580,000
$17,680,000
$11,830,000

TAKEAWAY FROM THIS CASE

Single-version
Price is optimized over the range of WTPs across segments
o Money left on the table subsidizing some consumer segments
o Lost opportunity leaving some segments out of the market
o

Multi-version
o

Decrease the two sources of lost revenue

Potentially increase in profits

Prices for high-end product are not optimized over WTPs of

segments for that high-end product (Incentive Compatibility)
o Price of high-end product increases compared with the singleversion case
o

Benefitsandcostsofincreasingproductvariety
4