Question

ESPN is negotiating with each team in the Big Ten to broadcast football games this fall. ESPN estimates that the advertising and subscription revenue they can earn from airing Q games is

P (Q) = 100 − 4Q
The marginal cost for each team to play a game is MC = 20. First suppose that each team negotiates prices

with ESPN separately and, therefore, compete in a Bertrand pricing model.
1. What is the equilibrium price that the team’s will charge ESPN to air their games?
2. How many games will ESPN buy?
3. What is the profit (surplus) for ESPN? What is the profit (surplus) for each Big Ten team?

Now suppose that the teams allow the Big Ten to negotiate the TV contract (making them a monopoly)

4. What is the equilibrium price that the Big Ten will charge ESPN to air their games?

5. How many games will ESPN buy?

6. What is the profit for ESPN? What is the profit for each Big Ten team (assuming they split it equally among the 14 teams)?

Answer 1