N=2 video broadcasting websites, You and Twi, must decide the number of minutes of ads to be displayed for every video that the user elects to watch. Let tY be the number of ad-minutes per video set by You, and tT the number of ad-minutes per video set by Twi. Streaming one video costs You cY=0.02, while it costs Twi cT=0.03. There are 100 million potential users, and each watches videos according to the following demand curves: qY((tY,tT) =10-2tY+tT=10-2tT+tY a- What is the cross-price elasticity between You and Twi? b- Suppose, for now, that You and Twi enter an (illegal) agreement by which they set tY=tT=t Derive the total number of users in the market as a function of t. Derive the profits for each website as a function of t. c- Now let the two platforms compete by each setting their number of ad-minutes: i. What is the best reply of You? What is the best reply of Twi? ii. Find the Nash Equilibrium of the game. iii. How many total users choose You and how many total users choose Twi? iv. [EXTRA] Would you expect consumers to be better off if platforms were offering a flat-fee to experience the websites without ads? (No math needed, discuss!)
N=2 video broadcasting websites, You and Twi, must decide the number of minutes of ads to be displayed for every video that the user elects to watch. Let tY be the number of ad-minutes per video set by You, and tT the number of ad-minutes per video set by Twi. Streaming one video costs You cY=0.02, while it costs Twi cT=0.03. There are 100 million potential users, and each watches videos according to the following
Trending now
This is a popular solution!
Step by step
Solved in 3 steps
