Asked by Ashlee Myers on Sep 24, 2024
Verified
Double markup problems arise when
A) upstream firms have no market power
B) downstream firms have no market power
C) upstream and downstream products are unrelated in demand
D) upstream and downstream firm's pricing decisions tend to decrease the demand for the other product
Downstream Firms
Companies that operate closer to the end-user or consumer in the supply chain, typically involved in the distribution, retail, or post-production stages.
Upstream Firms
Companies involved in the initial stages of production or service provision, typically involving the extraction or production of raw materials.
Market Power
The ability of a company to influence or control prices and market conditions within an industry due to its size or market share.
- Identify the causes and consequences of double marginalization.
Verified Answer
TH
Tommy Hoeflerabout 18 hours ago
Final Answer :
D
Explanation :
Double markup problems arise when upstream and downstream firms' pricing decisions tend to decrease the demand for the other product. This occurs when the upstream firm increases the price, which leads to the downstream firm increasing their price to maintain their profit margin, further decreasing demand for the upstream product. This cycle can continue, resulting in both firms marking up their prices and reducing demand.
Learning Objectives
- Identify the causes and consequences of double marginalization.