Figure 14-5

Netflix (N)was one of the first companies to offer streaming video services and is still considered a leader in the industry. Spotify (S)offers a music streaming service and in 2015 considered entering the video streaming business. At that point, Netflix had to decide whether or not to lower its subscription price in order to deter Spotify's entry into the market. Figure 14-5 shows a hypothetical decision tree for the Netflix-Spotify entry game.
-Refer to Figure 14-5.If Netflix lowers its price, will this deter Spotify from setting up a streaming video service?

Question

Figure 14-5
  
Netflix (N)was one of the first companies to offer streaming video services and is still considered a leader in the industry. Spotify (S)offers a music streaming service and in 2015 considered entering the video streaming business. At that point, Netflix had to decide whether or not to lower its subscription price in order to deter Spotify's entry into the market. Figure 14-5 shows a hypothetical decision tree for the Netflix-Spotify entry game.
-Refer to Figure 14-5.If Netflix lowers its price, will this deter Spotify from setting up a streaming video service?

Quizplus · Accepted Answer

Lowering the subscription price would decrease Netflix's profit to $2 million, making it more attractive for Spotify to enter the market and make a profit of $3 million. Therefore, lowering the price would not deter Spotify from setting up a streaming video service. Option C is the only option that reflects this outcome.

Figure 14-5 Netflix (N)was One of the First Companies to Offer Streaming