Who benefits and who loses from this example of vertical integration?

Consider a monopolist manufacturer that produces a product at a marginal cost of 20 but must sell to Show more Consider a monopolist manufacturer that produces a product at a marginal cost of 20 but must sell to customers through a retailer which it does not own. Inverse retail demand for the product is P = 80 Q. The retailer has no marginal costs aside from the wholesale price w it must pay the manufacturer for each unit of the product. The retailer has a fixed cost of 50 which you can think of as the cost of leasing retail space from a strip mall. 1 (a) [10 points] Assume the manufacturer does not own the retailer. What wholesale price w will it charge? What will the retail price for the good be? (b) [10 points] Suppose the retailer buys the manufacturer so that the retailer can now produce the product at a marginal cost of 20 instead of paying some higher wholesale price for the good. Will the retailer change its retail price? Who benefits and who loses from this example of vertical integration? (c) [10 points] Suppose the retailer buys the strip mall so that it no longer has to pay the fixed cost of 50. Will the retailer change its retail price? Who benefits and who loses from this example of vertical integration? Show less

QUICK QUOTE

Approximately 250 words