At the start of 2009, following the bankruptcy of its competitors, Katalina Yachts was the only supplier of luxury sailing yachts in the North American market. The figure above shows the transaction prices for yachts sold by Katalina during this period (starting at point A) and the periods that followed. At point B, one competitor, Flying Fifteen Yachts, makes it out of bankruptcy proceedings and starts trading again. Both Katalina and Flying Fifteen have massive production facilities that can easily accommodate the market demand at the time and neither are producing at anything close to capacity. Further, their yachts are regarded as essentially perfect substitutes (that said, each yacht is very slightly different due to the owner's specific tastes and so prices differ from yacht to yacht slightly). Finally, it is well understood in the market that, due to being able to restructure labor contracts during the bankruptcy process, Flying Fifteen has a marginal cost $1 lower than that of Katalina.

(??1Allocative inefficiency in this context can be thought of as failure to realize the optimal level of output to realise all gains from trade. Productive inefficiency can be thought of a failure to produce the actual level of output at the minimum possible cost.)

Figure 1: Prices during 2009 for Katalina Yachts I'|| OH OI'NUJ-kWOWNOO'D Notes: time, in weeks, is on the horizontal axis. Price is on the vertical axis