Cambridge Software Corporations – Case Study – Max Yang
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Cambridge Software Corporations
Question #1: What are the optimal prices and which versions should be offered if Cambridge Software Corporation (CSC) can perfectly price discriminate?
Perfect price discrimination allows the firm to charge different prices for each market segment to the point where consumers pay their maximum WTP. We need to maximize profits from each market segment. Setting aside segment development cost, which is a fixed cost regardless of which version(s) chosen, we calculated how much profit the firm can make from each market segment when choosing different versions to produce. As shown in the table below, we found that the company can make the most profit from each market segment if they choose to product the “Industrial” version. Therefore, the Industrial version should be the only version to produce, and the firm’s optimal price to charge is the WTP per unit of the industrial version of each market segment.
Market Segment
Version
Var Cost
Estimated product completion cost
Profit (Seg Dev Cost included)
Large corporation
Student
100000
575000
Commercial
200000
5675000
Industrial
500000
11825000
Corporate R&D
Student
100000
70000
Commercial
200000
1750000
Industrial
500000
3430000
Consultants
Student
20000
100000
3600000
Commercial
20000
200000
5300000
Industrial
20000
500000
10800000
Small Businesses
Student
15000
100000
2300000
Commercial
15000
200000
2800000
Industrial
15000
500000
3475000
Students
Student
500000
100000
17400000
Commercial
500000
200000
17300000
Industrial
500000
500000
32000000
Question #2: If CSC offers only one version of Modeler, which version should it offer? And at what price?
Market Segments
Large Multidivisional Corporations
Corporate R&D and university Laboratories
Consultants and professional Companies
Small businesses
Students
Student Version Only
Price
Segments that Purchase
Unit Cost
Unit Contribution
Seg Dev Cost
Demand
Total contribution
$200-$15 = $185
$200K
(20K*(185))- 200K – 100K =$3.4 MIL
$175 – $15 = $160
$400K
(35K*(160))-400K – 100K = $5.1 MIL
3,4,1
$150-$15 = $135
$550K
(40K*(135)) – 550K – 100K= $4.75 MIL
3,4,1,2
$100 – $15 = $85
$650K
(42K*(85))-650K – 100K = $2.82 MIL
3,4,1,2,5
$50- $15 = $35
$950K
(42K*(35)) + (500K*(15))-950K – 100K = $7.92 MIL
Commercial Version (Following Same Intuition as Above)
Price
Segments that Purchase
Unit Cost
Unit Contribution
Seg Dev Cost
Demand
Total contribution
$1200
$1200 – $25 = $1175
$150K
$5.725 MIL – 200K = 5.525MIL
$1000
$1000 – $25 = $975
$250K
$6.575 MIL – 200K = 6.375 MIL
1,2,3
$300 – $25 = $275
$450K
$6.976 MIL – 200K = 6.776 MIL
1,2,3,4
$225 – $25 = $200
$650K
$7.750
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By: Max Yang
Submitted: October 29, 2017
Essay Length: 600 Words / 3 Pages
Paper type: Case Study Views: 235
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