Time Warner could offer the History Channel (H) and Showtime

Time Warner could offer the History Channel (H) and Showtime (S) individually or as a bundle of both.

Suppose the reservation prices of customers 1 and 2 (the highest prices they are willing to pay) are presented in the boxes below.

The cost to Time Warner is $1 per customer for licensing fees.

For each of the question below write clear and concise answers in essay format.

1. Should Time Warner bundle or sell separately? (Essay)

2. Should Time Warner bundle if everyone likes Showtime more than the History Channel, i.e., preferences are positively correlated. (Essay)

3. Suppose Time Warner could sell Showtime for $9 and History channel for $8, while making Showtime-History bundle available for $13. Should it use mixed bundling. i.e., sells products both separately and as a bundle? (Essay)

Preferences