Assume a manufacturer's product is sold to the public through a retailer; the retailer is a monopolist in the product market. The retailer's demand is given by q = 1p, where p is set by the retailer. Consider the following game: 1. the manufacturer sets an intermediate price pi; 2. the retailer then chooses to buy a quantity q which it sells to the consumers at price p.

Assume that the manufacturer has a constant marginal cost c > 0 while the retailer incurs no distribution cost. What is the subgame perfect equilibrium of this game? What if the strategy of the manufacturer is a pair (F,pi), where F is a franchise fee imposed on the retailer simply to carry the product? (Assume that the retailer would earn zero profits in the absence of the right to carry that particular product.) Compare to the previous part of the question (F = 0) and discuss.