Assume Apple has a monopoly on iPhones and Verizon has a monopoly on the data plans. A data plan without an iPhone is worthless and an iPhone without a data plan is worthless. Thus there is no such thing as a demand for data plans or a demand for iPhones; there is only a demand for the combined iPhone-plus-data-plan. This demand is of the form P = 100? Q. The marginal cost of providing either an iPhone or a data plan is zero.
1. Assume the Apple sets the price of an iPhone, and then the Verizon follows by setting the price of a data plan. Explain what prices do they set?
2. Assume the instead that each firm sets a price independently. In Nash equilibrium, what prices do they set?
3. Assume instead that Apple colludes with the Verizon and they jointly set a monopoly price for the iPhone-plus-data-plan. Discuss what price do they set for the package?