In New York, there are only two TV stations. One day, each has the choice of broadcasting an All Blacks rugby game or the Royal New York Ballet: 70 percent of the viewers want to watch the rugby game;30 percent want to see the ballet. Each would rather have their ?ngernails removed than watch the alternative programme. If both stations show the same programme, they split the audience evenly between them.

(a) If maximising pro?ts means maximising viewing audience, what programmes will the two stations broadcast? Is the market equilibrium ef?cient? Why, or why not?

(b) Could the stations make a deal that would make them both better off compared to the market equilibrium you found above? Explain.