Question

In the light of the "Streaming Wars" that have started in the last couple of years consider your own demand for streaming services. Assume that you marginal benefit from your first subscription is $40 and decreases in half with every additional subscription you purchase.

Assume that each streaming service charges $10. Question A: Present the problem in a tabular form and find the optimal consumption of streaming at the price above. Question B: Formally derive your demand for streaming services. Please show how you do this. Question C: Assume that the streaming war has intensified among the main streaming companies and each of them has started pulling their own content from other services, and providing it only from their own service. Explain how this affects the problem you outlined in Question A and B above. Does this change the quantity demanded or your overall demand? Please re-write the table from Question A and explicitly explain what you have changed and why. I will awand more points for a more thorough justification. Question D: Ignore the assumption in Question C. Assume, instead, that each service becomes better at producing quality original content. Explain how this affects the problem you outlined in Question A and B above. Does this change the quantity demanded or your overall demand? Please re-write the table from Question A and explicitly explain what you have changed and why. I will award more points for a more thorough justification. Question E: Ignore the assumpution in Question C and D. How will a new entry of a streaming service provider affect your quantity demanded and overall demand? Explain clearly. It may be helpful to break down your answer in several parts.

Answer 1

Question A:Table of optimal consumption and marginal benefitStreaming ServicesSubscriptionsMarginal BenefitTotal BenefitFirst Subscription$40$40Second Subscription$20$60Third Subscription$10$70Fourth Subscription$5$75Fifth Subscription$2.5$77.5The optimal consumption of streaming services would be three subscriptions as this results in the highest total benefit of $70.Question B:Formal derivation of demand for streaming servicesThe demand for streaming services can be derived by setting the marginal benefit equal to the price. This means that:MB = P40/2^(n-1) = 10n = 1, 2, 3…Thus, the demand for streaming services is:n = log2 (MB/5) + 1Question C:Effect of streaming companies pulling their own content on the problem outlined in Question A and BThe problem outlined in Questions A and B would be affected by streaming companies pulling their own content from other services and providing it only from their own service. This would lead to a decrease in quantity demanded and overall demand. The table from Question A would need to be modified to reflect this change.SubscriptionsMarginal BenefitTotal BenefitFirst Subscription$40$40Second Subscription$20$60Third Subscription$0$60Question D:Effect of streaming services becoming better at producing quality original content on the problem outlined in Question A and BIf streaming services become better at producing quality original content, this would increase the marginal benefit and result in an increase in quantity demanded and overall demand. The table from Question A would need to be modified to reflect this change.SubscriptionsMarginal BenefitTotal BenefitFirst Subscription$40$40Second Subscription$80$120Third Subscription$160$280Question E:Effect of new entry of a streaming service provider on quantity demanded and overall demandThe entry of a new streaming service provider would increase the options available to the consumer, leading to an increase in quantity demanded and overall demand. However, this would also lead to increased competition, which could result in lower prices and a decrease in marginal benefit. Ultimately, the effect on quantity demanded and overall demand would depend on the specific characteristics of the new streaming service provider and the market as a whole.