The profits of the four major networks (CBS, NBC, ABC and Fox) depend significan
ID: 1197353 • Letter: T
Question
The profits of the four major networks (CBS, NBC, ABC and Fox) depend significantly on the ratings of its prime time shows. The higher the ratings, the higher the price the network can charge for advertising and the higher the profits of the network. To keep things simple, we will focus on two networks, CBS and NBC, and two of the prime time spots, 8-9PM and 9-10PM.
Each network needs to decide which time slot to place its hit show, 8-9PM or 9-10PM. The other time slot will be filled by a run of the mill show.
The following payoff matrix shows the total number of viewers (in millions) if each network places its hit show in each of the time slots:
If you are the program manager for CBS, what time slot would you place your hit TV show (assuming that your goal is to maximize the number of viewers)? Please explain why.
If you are the program manager for NBC, what time slot would you place your hit TV show (assuming that your goal is to maximize the number of viewers)? Please explain why.
Using the payoff matrix above, is there an incentive for NBC and CBS to collude and agree to put their hit shows in different time slots? Explain your answer.
Now suppose the payoff matrix for CBS in the 8-9PM time slot was changed from 33 to 25, as shown below:
Would your answer to a) and b) above change? Please explain your answer
CBS 8 - 9 PM time slot 9 -10 PM time slot NBC 8 - 9 PM time slot (36, 25) (39, 28) 9 -10 PM time slot (30, 36) (32, 30)Explanation / Answer
If I am the program manager of CBS, I have no dominant strategy. My profits would be maximized if I place my hit show in the slot according to what NBC is doing. If NBC place its hit show in 8-9slot then I will get the maximum viewers (28mn>25mn) during 9-10 slot and if NBC places its hit show in 9-10 slot, my profits will get maximized by placing my hit show in 8-9 slot and get 36mn viewers (which is >30mn).
If I am NBC program manager, I have dominant strategy to always place my show in 8-9slot irrespective of which time slot CBS chooses. I get 36mn viewers ( which is >30mn) if CBS places its hit show in 8-9slot and 39mn viewers (which is >32mn) if CBS places its hit show in 9-10 slot. Hence it is profitable for me to place my hit show in 8-9 slot only.
No, there is no incentive for both to collude and agree to place their hit shows in different time slots as profits of NBC is maximized only when it places its hit show in 8-9 slot always and when NBC will always choose 8-9 slot, it will be better for CBS to place its slow in 9-10 slot.
If payoff of CBS in 8-9 slot changes from 25 to 33 thwn even CBS has a dominant strategy to choose 8-9 slot always irrespective of what NBS chooses as it maximises its viewers then. Dominant strategy of NBC still remains the same to places its hit shows in 8-9 slot.
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