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?