Let us revisit the bundle-pricing problem discussed in class. A small restaurant offers Wine,
Pizza and the bundle Wine+Pizza. The manager is planning to add a third item to the menu:
homemade Gelato and wants to determine the right bundling strategy and pricing to use. After
some research, she has produced the following market data:
Consumer Class Wine Pizza Gelato Wine+Pizza Wine+Gelato Pizza+Gelato Wine+Pizza+Gelato Market Size
1 9 1.5 1 10.5 10 2.5 11.5 10
2 8 5 2 13 10 7 15 8
3 4.5 8.5 7 13 11.5 15.5 20 6
4 2.5 9 4 11.5 6.5 13 15.5 4
Individual Items Bundles
Willigness to Pay
Note that the rightmost column is the market size for each consumer class.
Formulate a linear program (similar to the one discussed in class for the Cambridge Corporation)
to compute the optimal (incentive compatible) prices for each of the seven products.
What are these optimal prices? What is the product that each consumer class will end up buying
under these prices? What is the restaurant revenue?
Sample Solution