Please file in all Fields Consider Disney's strategies for streaming movies and sports (with ESPN). Disney's subscribers are of three types - 1) Families with young children who really value Disney movies, but place a lower value on ESPN; let's call this Group F; and 2) Individuals who place a higher value on ESPN, let's call them Group S; and 3) Individuals who place the same value on both types of entertainment; let's call then Group M. The following table gives the values that each group places on each type of content: Disney does not have any marginal cost of streaming its movies to its subscribers, however, there is a cost for producing ESPN content, MC = c. Allocative efficiency from getting S group to see Disney and technical inefficiency from getting F group First best efficient should be that S watches both and F watches only Disney. But unbundled eq is S watches only ESPN and F watches only Disney. Consumer Group Value for Disney Movies $13 Group F Value for ESPN $1 $10 $4 Group S Group M $7 $7 Assume that $4 ≤ c < $7, so that it is not technically efficient to include Group F consumers in the ESPN subscription but it is efficient to include Group S and Group M. a. Describe the First-best efficient outcome. Which consumer groups should get the Disney subscription and which consumer groups should get the ESPN subscription? b. If Disney were to allow separate subscriptions for each, how would it price each subscription and who would subscribe to which service? The profits from ESPN will be a function of c. Disney Movies Price Quantity Profit $4 3 $7 $13 ESPN Sports Price Profit $4 $7 $10 1 c. What are Disney's profits and what is the consumer surplus for each group and the total surplus. (They will be functions of c.) Group M and Group F buy Movie subscription. Only Group S buys ESPN subscription. π = $24-C, CSF = $6, CSS = $0, CSM = $0, TS = $30 - c. 2 1 Quantity 3 2 d. Now suppose Disney instead offered a bundle with both Disney and ESPN. How would it price its bundle? e. What are Disney's profits, consumer surplus to each group and total surplus. (Again, they will be functions of c.) f. For what values of c is it profitable to bundle the two types of content together? g. For what values of c is it efficient to bundle the two types of content together? h. Explain the trade-off in technical and allocative efficiency from bundling. How is this trade-off affected by the value of c?