3.3 A maker of specialty soaps supplies a unique soap made from a cactus extract to the only two retailers in a small town. The producer sells the soap to the retailers at the marginal cost of production of the soap, $1 per bar, and receives 20% of the profit earned when the retailers sell the soap to customers.
Would the producer prefer that the retailers compete with each other on price or would the producer rather set the retail price of the soap for both retailers?