Practice question · Multiple choice
Versioning sells a cut-down product alongside a full one, sometimes by disabling features already built. Why can deliberately degrading a product raise profit?
Hints
- Ask what would happen if the cheap tier were nearly as good.
- The point is not the cost of the two versions.
Show the answer
A. Because the cheap tier must be worse enough to deter switching
Why
The degradation is a price-discrimination device. If the gap between tiers is too small the premium buyers trade down, and the firm captures less than with a single price, which is why the cheap tier is made worse on purpose.
Practise Pricing Strategies
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More questions on Pricing Strategies
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- Match each pricing method to the condition where it shines.
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