Two equal sized newspapers have overlap circulation of 10% (10% of the subscribe

Question

Two equal sized newspapers have overlap circulation of 10% (10% of the subscribers subscribe to both newspapers). Advertisers are willing to pay $10 to advertise in one newspaper but only $19 to advertise in both, because they're willling to pay twice to reach the same subscriber. what's the likely bargaining negotiation outcome if the advertisers bargain by telling each newspaper that they're going to reach agreement with the other newspaper, so the gains to reaching agreement are only $9? Suppose the two newspapers merge. What is the likely post-merger bargaining outcome?

Explanation / Answer

In this case both newspapers will offer the buyer 10% off their original price. The buyer then uses the probbility (50%*9)+(50%*9)=9 to compute the expected price to pay. If the two newspapers merge, it is likely the price will be 9.50. It will increse based on the last offer for 19 if they posted in two. Since that was for the two newspapers, if they merged they would pay 19/2=9.50 Hope this helps

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