The Tampa Tribune and the St. Petersburg Times compete for readers in the Tampa Bay market for newspapers. Recently, both newspapers considered changing the prices they charge for their Sunday editions. Suppose they considered the following payoff table for making a simultaneous decision to charge either a low price of $0.50 or a high price of $1.00. Tampa's profits are shown in bold. St. Petersburg's profits are in regular type.
For questions 1 - 10, choose the correct answer to fill in the blanks. Use the suggested words in parentheses after each blank. Provide a short explanation (40-50 words) to defend each choice.
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St. Petersburg Times
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Low Price
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High Price
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Low price
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A.
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B.
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$120,000
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$54,000
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Tampa Tribune
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$100,000
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$120,000
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C.
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D.
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High Price
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$90,000
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$88,000
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$54,000
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$90,000
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1. Tampa Tribune's dominant strategy is ____________ (low price, high price, it has no dominant strategy).
2. St. Petersburg Times' dominant strategy is ____________ (low price, high price, it has no dominant strategy).
3. Tampa Tribune's dominated strategy is ____________ (low price, high price, it has no dominant strategy).
4. St. Petersburg Times' dominated strategy is ____________ (low price, high price, it has no dominant strategy).
5. This newspaper pricing decision ________ (is, is not) a Prisoners' Dilemma.
6. Is there a Nash Equilibrium in this game? If so, which cell(s) is/are the Nash? Is/are the Nash Dominant Strategy Equilibrium?
7. Which cell(s) is/are strategically stable?
8. Refer to the Porter and Thomas paper. Using the concepts you have learned throughout this course, explain why sports economists believe ticket prices are too low. Incorporate as many of the major themes we have covered as applicable. As a minimum, you will want to include the concepts elasticity of demand, supply, and the profit maximization rules. You will need at least 200 words to thoroughly answer this question.
9. Refer to the Porter and Thomas paper. According to Porter and Thomas, what are sports teams doing to cause persistent shortages? How can these shortages be rational, profit-maximizing pricing strategies? You will need around 100 words to thoroughly answer this question.
Explain which advanced pricing techniques would be most appropriate for each of the following firms. A complete explanation for A-B-C should be at least 50 words.
A. Microsoft which offers student versions, household versions, and business versions of their software.
B. A car dealership
C. Sam's Club or Costco
Article - Public Subsidies and the Location and Pricing of Sports by Philip K. Porter* and Christopher R. Thomast