Why Do Firms Engage in Versioning When the Costs of Production

question 194

Multiple Choice

Why do firms engage in versioning when the costs of production differ little for different versions of the product?

• A) It is a form of price discrimination that allows the firm to earn more revenue and profit from its market situation.
• B) It is a lock-in strategy that allows a firm to retain customers over time.
• C) It tempts existing customers to buy multiple units of the product so that they can own every version.
• D) The firm will appear to be more dominant in this market if it produces several versions of its products.

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Definitions:

Forward Contract

A customizable financial contract between two parties to buy or sell an asset at a specified price on a future date.

Option Price

The price at which the holder of an option can buy (call option) or sell (put option) the underlying asset.

Forward Price

The agreed-upon price for a financial transaction that will occur at a future date.

Settlement

The process of resolving a transaction, which in finance typically means the exchange of payment for goods or services.