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Case Study#1/Game Theory

TimeMagazine and Newsweek are twocompetingnews magazines.Suppose thateach companychargesthesame$5.00pricefortheirmagazines. Eachwantstomaximizeits salesgiventhe$5.00price.Eachweek,therearetwopotentialcoverstories. Oneison politics. Theotherisontheeconomy.Salesofbothcompaniesareaffectedbythe decisions on which storyto placeon their covers.  The two magazines make this decision independentlyand atthesame time.

Theresultingsales forthetwocompanies are given in thefollowingtable:

 

TimeCover

Newsweek Cover

TimeSales

(Thousands ofdollars)

NewsweekSales

(Thousands ofdollars)

Politics

Politics

400

150

Politics

Economy

700

200

Economy

Economy

200

150

Economy

Politics

300

700

A.Constructa diagram thatshows thepayoffstothetwofirms.

B.Whatis theNash equilibrium in thisgame?

C.Doeseitherorbothofthemagazineshaveadominant(optimal)strategyinthis game?

D.Supposethatthesamepublishingcompanyownsbothmagazinesthatmaximize thecombinedprofitsofthemagazines.Willthecompanymakethesamechoice

as in thenon-cooperativegame?

Reference no: EM13150183

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