Question

Xbox One X Controller

The marketing manager of Microsoft finds that customers prefer PlayStation more than Xbox One X, and he plans to reduce the price of Xbox One X console and, at the same time, introduces a new controller.

His goal is to maximize the profits generated by the combination of Xbox One X and the new controller. He believes that this is a good strategy to compete with Sony PlayStation.

He provides the following information:

• Product: Microsoft Xbox One X 1TB Console
  • Current selling price: $389.90
  • Sales in 2019: 29.5 million units
  • Variable cost per unit: $116
  • Fixed cost per unit: $35
  • Price elasticity for high-end gaming console: 2.6
  • Average lifetime of Xbox One X console: 6 years

• Product: Bluetooth controller
  • Average lifetime of controller: 2 years
  • Selling price of controller: $59.99
  • Profit from selling one controller: $39.99

Question: Should the marketing manager lowers the prices of Xbox One X after considering the profits generated from the new controller? If yes, how much price reduction should the marketing manager offer?

[Please type the answer]

Answer 1

Here the Elasticity of Demand is given as 2.6

Elasticity of Demand 2.6 = Percentage Change in Quantity Demand / Percentage Change in Price

Possible percentage change in Quantity Demand = 26

Possible percentage change in Price = 10

Therefore 26/10 = 2.6 (Elasticity of Demand)

Price change required is 10% decrease ie. $ 389.9 X 90% = $ 350.91

Effective price reduction for XBOX is $ 38.99

Combined Price - $ 350.91 + $ 59.99 = $ 410.9