Based on your answer in a, What privacy setting does the smartphone producer implement? Does the social media frim produce the app? If the smartphone producer and social media firm merged to form a single firm, qould this change the outcome you prodecited above? If so, how and not why not?
Based on your answer in a, What privacy setting does the smartphone producer implement? Does the social media frim produce the app? If the smartphone producer and social media firm merged to form a single firm, qould this change the outcome you prodecited above? If so, how and not why not?
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Question
Based on your answer in a,
- What privacy setting does the smartphone producer implement?
- Does the social media frim produce the app?
- If the smartphone producer and social media firm merged to form a single firm, qould this change the outcome you prodecited above? If so, how and not why not?
Transcribed Image Text:In this question I ask you to analyze the decisions of a smartphone producer and social media
firm.
The smartphone producer controls the privacy settings on the smartphone. The smartphone
producer chooses between lax and strict privacy settings. Consumers would prefer strict
settings. So if the smartphone producer chooses strict settings, it can raise prices, leading to an
increase of profits of $2B.
The social media firm chooses whether to produce an app that runs on the smartphone's
operating system. The social media firm's profits stem primarily from the sale of advertising.
The app increases the social media firm's profits by $4B if the privacy settings are lax, but by
$1B if the privacy settings are strict.
The app is highly valued by users, and so affects what consumers are willing to pay for the
smartphone, in turn affecting the smartphone producer's profits. Specifically: If the social
media firm produces the app, it increases the smartphone producer's profits by $1B if the
smartphone has strict privacy settings, and by $0.5B if the smartphone has lax privacy settings.
If the smartphone producer chooses lax privacy settings, and the social media firm doesn't
produce an app, then the profits of the two entities are $2B and $3B respectively.
Part (a)
Treating the setting as a simultaneous-move game, draw the game in matrix form.
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