Our only competitor in the region currently provides

bundled services at $79.95. We are currently charging a 10 percent

premium over its price, but there are rumors that it is contemplating a 10

percent price increase to bring its price in line with ours. We dont know

its cost structure, so we dont know whether its price increase is driven

by rising costs or a strategic move to gain margin.

Historically, when we both charge the same price, our market share is

about 65 percent. When we charge a 10 percent premium over its price,

our market share declines to about 60 percent. It appears that in those

instances when it charges a 10 percent higher price than us, our market

share is about 70 percent.

Please provide a recommendation regarding whether we should

maintain our current price or reduce our price to $79.95. Please factor

into your recommendation that we pay programming fees that amount

to $49.50 per subscriber. In addition, maintenance, service, and billing

costs are about $6.50 per subscriber. At present, there are 110,000

households in the relevant market. (Use game theory to write in normal form)