> This is an example of 'bundling' goods. It pays to offer some good for > 'free' to entice the purchase of others. > > Tim James.
Not at all obvious. Two goods, A and B, with marginal cost CA and CB, and independent marginal value VA and VB, with VA>CA and VB>CB. A buyer will pay VA+VB for the bundle, and profit is (VA+VB)-(CA+CB). Price them separately and profit is (VA-CA)+(VB-CB), which is obviously the same thing. I grant the problem becomes more difficult if the goods are not independent. It is worth keeping in mind that any theory of free toilets, including ad hoc theories about the indignity of paying for a toilet, has to explain why McDonald's does not usually charge for the toilets or parking, but charges for the fries and soda. I note as well that there is huge and often seemingly odd (no practice is really odd, but economists aren't always willing to do the hard work of figuring it out) variation in toilet pricing. It is common in much of Europe, and in my experience it is very common in Eastern Europe (perhaps because wages are low enough to have a monitor), but it is also common in very fancy clubs, where you had better tip the guy who hands out towels and the like. William Sjostrom +++++++++++++ William Sjostrom Senior Lecturer Department of Economics National University of Ireland, Cork Cork, Ireland +353-21-490-2091 (work) +353-21-427-3920 (fax) +353-21-463-4056 (home) [EMAIL PROTECTED] [EMAIL PROTECTED] www.ucc.ie/~sjostrom/
