Consider a market with a single manufacturer M that sells its product via two retailers. The manufacturer does not incur any costs. There are two retailers, R₁ and R, that face no cost of distribution. Retailers compete in quantities. Inverse demand is given by p= 12-Q, where Qq+q2 is the total quantity offered by both retailers. The manufacturer offers contracts on a take it or leave it basis to the two retailers. Retailers observe the contracts signed by all retailers before retailers simultaneously chooses their quantities,
Consider a market with a single manufacturer M that sells its product via two retailers. The manufacturer does not incur any costs. There are two retailers, R₁ and R, that face no cost of distribution. Retailers compete in quantities. Inverse demand is given by p= 12-Q, where Qq+q2 is the total quantity offered by both retailers. The manufacturer offers contracts on a take it or leave it basis to the two retailers. Retailers
observe the contracts signed by all retailers before retailers simultaneously chooses their
quantities,
a) Suppose offers the same per-unit wholesale price w to both retailers. What is the resulting market price depending on w?
b) What is the optimal choice of w for the manufacturer. Is there a problem of double marginalization?
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