Question
Netflix and Hulu are deciding what to charge for their online streaming services. Each streaming service can choose a price of either $9 or $12
Netflix and Hulu are deciding what to charge for their online streaming services. Each streaming service can choose a price of either $9 or $12 per month. There are 10 million potential customers. Of these 10 million, 1 million are loyal Netflix customers and another distinct 1 million are loyal Hulu customers. The remaining 8 million consumers will choose the streaming service that is charging the lower price. If the prices are the same, the two firms will split the market, 5 million customers each. The marginal cost of providing service for each company is 0.
Question: Suppose that the firms' monthly discount factor is "r". Find the conditions under which the cooperative agreement can be sustained.
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