3. Suppose that Fender is trying to practice indirect price discrimination throu

Question

3. Suppose that Fender is trying to practice indirect price discrimination through versioning It plans to offer a cheaper version of its guitar for consumers who are highly price- sensitive and a more expensive version of its guitar to consumers who are less price- sensitive. Which of the following pricing schemes is incentive-compatible? Consumer Valuations for Two Versions of Fender Stratocaster Guitars American Standard Stratocaster Consumer Type American Deluxe $1,100 $1,200 Stratocaster $1,250 $1,800 Highly price-sensitive Less price-sensitive a. b. c. d. price of American Standard = $800; price of American Deluxe = $1,599 price of American Standard $900; price of American Deluxe $1,001 price of American Standard $999, price of American Deluxe = $1,499 price of American Standard = $1 ,119, price of American Deluxe = $1,750

Explanation / Answer

Correct option is c, because this will be able to fetch maximum consumer base of both type thus maximizing profits.

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