Reference no: EM132407655
Apple is introducing Apple Watch.
Assume that the marginal cost is $200. Apple has identified five segments based on their willingness to pay for the device: innovators, early adopters, early majority, late majority, and laggards.
# Users Willingness-to-Pay
Innovators 25 $2,000
Early adopters 135 $800
Early majority 340 $500
Late majority 340 $400
Laggards 160 $50
1a. Suppose that all consumers are very impatient (i.e., they will not wait for the future lower price at all), and that Apple plans to inter-temporally price discriminate consumers. How should Apple set prices over time and why, and how much profit does it earn?
1b. Suppose that all consumers are very patient (i.e., they will wait for the lowest price) and perfectly rational (i.e., they know the marginal cost and can correctly guess what Apple will do). What will be the optimal price and why? How much does Apple earn?
1c.Suppose that while Innovators and early adopters are very impatient, the rest of the segments are very patient, perfectly rational, and willing to wait for the future price cut. How should Apple set prices over time to maximize its profits and why? How much does Apple earn?
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