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[QUOTE="Millhouse, post: 418461, member: 78"]
scooch do i really have to do the cable bundling example again?
 
i really need to save it to spare me the work
 
sigh
 
simple model assumptions for easy math
 
******
1 cable company CableCo
2 customers Joe and Bob
2 channels Sports and News
 
Joe would pay $10 for Sports and 3 for News
Bob would pay $10 for News and 3 for Sports.
 
CableCo knows that each channel is worth 10 to one customer and 3 to another but doesn't know the preferences of each individual customer.
******
 
CableCo Ala Carte: Pricing would then be $10 for each channel.
Joe and Bob get one channel that is worth $10 to each of them. CableCo gets $20
 
CableCo Bundled Pricing: Pricing would be $12 for the bundle. Joe and Bob get 2 channels for $12 that is worth $13 to each of them. CableCo gets $24.
 
Bundling is a win win. CableCo has more profit, Joe and Bob get a dollar of "consumer surplus"
 
The math gets difficult with more people and more channels but the assumptions are the same. If the cable company is unable to charge each person what they value each channel and if people value channels at less than what CableCo would charge ala carte, the bundle makes everyone happy.
 
People don't realize that CableCo will charge a lot per channel ala carte.
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