Time Magazine and Newsweek are two competing news magazines. Suppose that each company charges the same $5 price for their magazines. Each wants to maximize its sales given the $5 price. Each week, there are two potential cover stories. One is on politics. The other is on the economy. Sales of both companies are affected by the decisions on which story to place on their covers. The two magazines make this decision independently and at the same time. The resulting sales for the two companies are given in the following table:
Time Sales Newsweek Sales
|
Time Cover
|
Newsweek Cover
|
($000's)
|
($000's)
|
|
Politics
|
Politics
|
400
|
150
|
|
Politics
|
Economy
|
700
|
200
|
|
Economy
|
Economy
|
200
|
150
|
|
Economy
|
Politics
|
300
|
700
|
a. Construct a diagram that shows the payoffs to the two firms in strategic (normal) form.
b. What is the Nash equilibrium in this game?
c. Does either or both of the magazines have a dominant strategy in this game?
d. Suppose that both magazines are owned by the same publishing company that maxi- mizes the combined profits of the magazines. Will the company make the same choice as in the noncooperative game?