Wednesday, October 17, 2012

Pricing the Xbox

The New York Times has an interesting article on how Microsoft might change how they price their Xbox game console to customers.  Microsoft is experimenting with the idea of lowering the Xbox price and requiring customers to agree to a two year Xbox Live commitment, which would be slightly more costly than the current price.

Here we see the implications of the multi-product firm when the firm is selling complementary products.  Lowering the price of one of the goods increases the demand for the other allowing the firm to increase their profits, which fits well with the Microsoft Xbox example.

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