1. Super Bowl commercials are now selling for more than $5 million per 30-second slot on...

1. Super Bowl commercials are now selling for more than $5 million per 30-second slot on average. The TV network showing the game is a monopoly. It has full pricing power over customers. But it still faces a downward-sloping demand curve. To maximize the profits, it is engaged in differential pricing. Some advertisers pay more than others.

2. The Washington Post for the first time aired a commercial during the 2019 Super Bowl. Budweiser, on the other hand, was a perennial advertiser for the Super Bowl and had a few commercials in the same game. CBS, the TV network, treated them differently. Based on your understanding of differential pricing, which advertiser paid more for a 30-second slot? Why?

Expert Solution

The money companies spend on their television advertisements is directly related to their target audience in their market, the approximate ammout of sales they expect to generate from airing the advertisement and the total number of viewers of the program.

In this scenario, it can be seen that the total number of viewers will be the same for both the companies, but the other two factors will vary significantly. Washington Post will not generate excess revenue from airing their advertisement in a Super Bowl, because the demographic constitution of the audience is not a favourable target audience for them. On the other hand, Budweiser will be able to substantially increase their sales from airing their advertisement in a Super Bowl, as the demographic constitution of the audience is exactly the target market that they hope to capture. Hence, the after sale profit resulting from this 30-second advertisement will be much more for Budweiser than for the Washington Post, and hence, Budweiser will be in a position to pay much more for their advertisement than the Wahsington Post.

Rahul Sunny answered 2 years ago

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