Vertical Relations and Restraints - Sarah L Stafford Old Page垂直关系和约束-莎拉斯塔福德旧页面.pptVIP

Vertical Relations and Restraints Many transactions take place between two firms, rather than between a firm and consumers Key differences in these types of transactions: Demand for an intermediate good being sold by an upstream company to a downstream company is derived from the demand curve the downstream company faces. The buyers of the intermediate good, the downstream companies, compete with one another. Types of Vertical Relationships/Restraints Relationships Franchise Licensed/authorized dealer Agent Restraints Exclusive territories Royalty agreements Resale price maintenance Double Marginalization Assume there is an upstream firm, the manufacturer of the product, and a downstream firm that sells the product in a retail outlet. Assume retailers have no costs, just buy the product and then resell it costlessly. Also assume that the marginal cost of manufacturing the product is constant, c. Consumer demand for the product is P = a - bQ. Double Marginalization, con’t If the manufacturer and retailer were an integrated company, the firm would set MR=MC to maximize profit: a-2bq = c or q = (a-c)/2b Price = a - b*(a-c)/2b = (a+c)/2 Profit = [ (a+c)/2 - c ]*(a-c)/2b = (a-c)2/4b Double Marginalization, con’t If the manufacturer and retailer are separate companies: Assume that the price the retailer pays the manufacturer is r. To maximize profit, the retailer sets r = MR: a-2bq = r or q = (a-r)/2b Price = a - b(a-r)/2b = (a+r)/2 Profit = [ (a+r)/2 - r ]*(a-r)/2b = (a-r)2/4b Double Marginalization, con’t Thus the retailer’s demand for the manufacturer’s product is q = (a-r)/2b. The inverse demand curve for the manufacturer is thus r = a-2bq. Note that this is the same as the retailer’s marginal revenue curve. So the manufacturer’s MR curve = a - 4bq. Double Marginalization, con’t Setting MR=MC: a - 4bq = c, or q = (a-c)/4b Price = a - 2b (a-c)/4b = (a+c)/2 (Be sure to use the manufacturer’s demand curve to get price, not the consumer’s demand curve) Profit