Question
Suppose that market demand isD(p) = 1002p. A downstream monopolistDsets a retail pricepand an upstream monopolistUsets a wholesale pricewpaid by the downstream firm. Assume marginal
Suppose that market demand isD(p) = 1002p. A downstream monopolistDsets a retail pricepand an upstream monopolistUsets a wholesale pricewpaid by the downstream firm. Assume marginal costs of respectivelyCD= 20 and CU=10 and fixed costs of FCD=10 and FCU=20.
- What is the price and profits under vertical separation?
- What is the price and firm profit under vertical integration? How does this show the problem of double marginalisation? How might this be resolved?
- What is an optimal wholesale price w and franchise fee F from the per- spective of the upstream firm? How does this resolve double marginalisation?
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Systems Analysis and Design
Authors: Shelly Cashman, Gary B. Shelly and Harry J. Rosenblatt
9th Edition
978-1133274056, 9780538481618, 1133274056, 538481617, 978-1133274636
