Question

It is common practice for the National Hockey League to offer season subscription packages to TV viewers via cable and satellite providers. Suppose that this year the NHL is considering the idea of including the preseason games into the regular season packages.

The pool of NHL followers consists of an equal number of ‘hard-core’ and ‘regular’ fans. (For concreteness let’s say one million households are hard core and one million are regular.) The following table shows how much each type fans value the regular season and the pre-season packages.

	Regular season	Preseason	Bundled Package
Hard core fans	$200	$50
Regular fans	$140	$10

a. (2 pts) From the NHL point of view, what is the best price to charge for a regular season TV package?

b. (3 pts) What is the maximum amount of revenue the NHL can get if it offers the regular season package and the preseason games package separately from each other? Show your work.

Answer 1

a) Given the reservation prices of hardcore and regular players, it is seen that in regular season, if the price charged is $200, only one consumer buys it and if $140 is charged, two consumers buy it, taking the revenue to $280. So the best price charged is $140 for regular season.

b) If the bundles are made, then hardcore fans would have the value of bundle as $250 and regular fans would have value as $150.

Now if the price of regular season is $140 , both consumers are able to buy it and revenue is $280 which is higher than $200. Also if the preseason is at $50, only one consumer would buy it and if the price is $10, two consumers buy it and yet the maximum revenue is when the price is $50.

Hence the maximum revenue is $50+280=$330 when the goods are offered separately.

(You can comment for doubts)