GROUP PROJECT II: NEWSPAPER WARS: Since Rupert Murdoch took over the archrival New York Post, a series of price cuts and retaliatory woves have them place. These events have severely . fiented industry profits. Leeward N Stern, formerly owner of the . wage Vows, s. Emaniced the situation as follows. The Daily News is the dommant tabloid of the city. and it is now under challenge for its life. This is it. I believe the battle has been joined. When it's over, things are not going to look the say they do today. And referring to Rupert Murdoch's willingness to take losses, he added: I've been in many businesses including publishing. I can tell you categorically. I don't want to be in any business where I have to compete with Rupert Murdoch. You have been hired by the Daig New as ~ strategy consultant. During your first meeting with the mrnagement of the Daily New, the situation was summarized as follows: Everything was fine until Murdoch took over the Post. Currently, we are both pricing at 20-, down from our normal 5(c. True, circulation and advertising revenues have gone up, but the problem is that our net profit is down by a lot. . ou can look at it from two points of view. One is with low prices we are leaving a lot of money on the table. The other one is: we are playing the game against a fellow named Murdoch. At the meeting, you were provided with circulation and revenue data for both papers, which is available in the dailynews. *lax spreadsheet. You'll see there that newspapers have two important sources of revenue: sales and advertising. Advertising is tied to circulation, so a lower price that generates higher circulation may raise advertising revenue. At the meeting with the Daily News, you were also told that overhead costs are in the order of $525,000 per week for both firms. Marginal costs are estimated to be 12 - per copy for the Post and 13c per copy for the New. Also, for both papers, depreciation of equipment (printing presses, trucks, computers, etc.) averages at about 8c a copy (although it is higher when circulation is lower and vice versa). All of this information is common knowledge throughout the industry. The senior management of the Daily Nes wants a short report that addresses the following questions with respect to the pricing of newspapers: (@) Suppose that each firm's newspaper price is set only once and must be eith-. 25c c. 50c What price should the Daily News charge: Explain. (b) suppose that prices are set only once but each newspaper has complete flexibility as to what price to charge rounded off to the nearest penny). What price should the Daily News charge? Explain