Tuesday, May 8, 2007

Horribly annoying ad: 5 million users!

Here is the horribly annoying ad that I mentioned today in class. Note the large bubble letters with "5 million users" in candy-yellow.



Here's a question for you: suppose, as in the case we looked at in class today, the inverse demand for a networking product is given by p = n(1 - x). If expectations are accurate, then n = x, so the inverse demand curve is given by p = x(1 - x). This has two solutions at each price: for example, if p = 3/16, then it could be that x = 1/4 or x = 3/4. How much would the monopoly be willing to pay in advertising in order to convince consumers that x = 3/4? Is that what this ad is meant to do?

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