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SoS (Sounds of Silence, Inc) prepares to launch a revolutionary system of bluetooth-enabled noise-cancellation headphones. It is estimated that about 800,000 consumers would be willing to pay $450 for the headphones; an additional 1,500,000 consumers would be willing to pay $250 for the headphones. Though SoS knows this marketing information, it cannot identify a consumer as belonging to one group or the other. SoS is considering the launch of a stripped-down version of the headphones (the strippeddown version uses wires instead of bluetooth). The 800,000 high-valuation consumers would only be willing to pay $325 for the stripped-down version. The remaining 1,500,000 consumers don't particularly care about bluetooth vs. wire connections; they are willing to pay the same $250 for either version. Both the bluetooth version and the stripped-down version cost the same to produce: $100 per unit.
1. Determine the optimal pricing policy assuming that SoS only sells bluetooth-enabled headphones.
2. Determine the optimal pricing policy assuming that SoS offers the two versions.
3. Suppose that SoS finds out that the estimate regarding the number of low-valuation users is overly optimistic. In fact, there are only 300,000 consumers who would be willing to pay $250. How would you change your answer to (a) and (b)?
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