Question

Doritos is planning its pricing strategy for its bag of Cool Ranch Tortilla Chips (C). Suppose the consumer

valuations for the bags of these chips are given in the table below. Doritos realizes that for every bag of

chips that it sells, it sells a bottle of Hot Chipotle Salsa Dip (D). The consumers’ valuations for bottles of

the dip are also provided in the table below. Suppose it costs $3.50 to produce a bag of chips and $0.5

for a bottle of the dip.

Number of bags/bottles	Price of C	Price of D
0	20	25
1	18	22
2	14	20
3	12	17
4	8	16
5	6	14
6	5	10

a) Suppose Doritos was unaware of the complementary effect of the sale of chips on the dips. What

will be the optimal prices it would select separately for the chips (C) and the dips (D)? Given that

consumers buy the dip only when they buy chips, what will be Doritos’ profit in this case?

(b) Now suppose Doritos is aware of the complementary effect of the sale of the chips on the dips.

What will be the optimal price it would select for the chips (C) and the dips (D)? What is Doritos’

profit now?

(c) Compare the prices you obtain in (a) and (b) and explain the reason for the difference in prices.

How does this difference in pricing help in the seller’s profit when it takes into account the

complementarities between the product?

Answer 1