Question
Suppose a buyer is willing to pay up to $200 for one unit of some good. There is currently only one supplier of the good
Suppose a buyer is willing to pay up to $200 for one unit of some good. There is currently only one supplier of the good and its cost of supplying one unit of the good is $100. Next period, a rival supplier may appear in the market. The rival's cost of supplying the good is not known. It is assumed to be uniformly distributed on the interval [50,150]. Describe a long-term contract that the current supplier can offer the buyer and that at the same time will strengthen the monopoly power of the current supplier.
This is an industrial organization question. I have no idea how to answer this.
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