Figure 14-3

Rainbow Writer (RW)is a small online company selling a highly rated software package for engraving words onto objects produced by 3D printers. The firm currently earns a profit of $2 million per year selling its package exclusively on its Website. Odeon, the producer of the most popular 3D printers has expressed interest in bundling Rainbow Writer's product with its printers. Odeon expects that bundling would further boost its sales and allow it to sell its printers at a higher price, thus raising its profits beyond its current profit of $12 million. Figure 14.3 shows the decision tree for the Rainbow Writer-Odeon bargaining game.
-Refer to Figure 14-3.How will Rainbow Writer respond to Odeon's two possible offers?

Question

Figure 14-3
  
Rainbow Writer (RW)is a small online company selling a highly rated software package for engraving words onto objects produced by 3D printers. The firm currently earns a profit of $2 million per year selling its package exclusively on its Website. Odeon, the producer of the most popular 3D printers has expressed interest in bundling Rainbow Writer's product with its printers. Odeon expects that bundling would further boost its sales and allow it to sell its printers at a higher price, thus raising its profits beyond its current profit of $12 million. Figure 14.3 shows the decision tree for the Rainbow Writer-Odeon bargaining game.
-Refer to Figure 14-3.How will Rainbow Writer respond to Odeon's two possible offers?

Quizplus · Accepted Answer

Rainbow Writer's best choice is to only accept an offer of $40 per copy of the software package. If Odeon offers $50 per copy, Rainbow Writer's projected profit will be $5 million, which is lower than the $6 million projected profit if Rainbow Writer accepts Odeon's offer of $40 per copy. Therefore, Rainbow Writer will reject the offer of $50 per copy and only accept the offer of $40 per copy, which results in a projected profit of $6 million.

Figure 14-3 Rainbow Writer (RW)is a Small Online Company Selling a Highly