Question 1

​Harry's HVAC sells its new units with locked and encrypted servicing software,which only Harry's own service technicians can operate.Why would it want to do that?
A)​To ensure that the customer knows that they are stuck with Harry's service technicians
B)To ensure that Harry's technicians do not service the equipment.
C)To ensure that the customers do not buy second-class servicing and then infer faulty design if a unit breaks down due to inadequate service
D)​All of the above

Accepted Answer

By locking and encrypting the servicing software, Harry's HVAC is ensuring that customers do not buy second-class servicing for their units. If a unit breaks down due to inadequate service, customers may blame faulty design, which could harm the reputation of the company. By limiting servicing to only Harry's own service technicians, the company can ensure that their equipment is receiving proper care and maintenance. While it may also limit customers to using Harry's service technicians, this is not the primary reason for the locked and encrypted software.

Question 2

​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

Accepted Answer

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.

Question 3

​Vertical relationships can increase profits through
A)​preventing firms from evading regulation
B)creating a double-markup problem
C)making the incentives of manufacturers and retailers unaligned
D)​facilitating price discrimination

Accepted Answer

Vertical relationships can facilitate price discrimination, as manufacturers can sell their products at different prices to different retailers, based on factors such as geographic location and demand. This allows manufacturers to capture more consumer surplus and increase profits. A double markup problem and misaligned incentives can actually decrease profits, while preventing firms from evading regulation is not directly related to increasing profits.

Question 4

​In the problem of double marginalization,the resulting price is ______than if the manufacturer and the retailer were to merge
A)​Higher
B)Lower
C)The same
D)​None of the above

Accepted Answer

In the problem of double marginalization, both the manufacturer and the retailer add a markup to the price leading to a higher final price for the customer. If they were to merge, there would be a single markup leading to a lower final price. Therefore, the resulting price with double marginalization is higher than if the manufacturer and retailer were to merge.

Question 5

​Harry's HVAC sells its new units bundled with after sales service.Why would it want to do that?
A)​To ensure that the customer knows that they are stuck with Harry's service technicians
B)To ensure that only the highest paid personnel get to service the units
C)To ensure that the customers do not buy second-class servicing and then infer faulty design if a unit breaks down due to inadequate service
D)​All of the above

Accepted Answer

By bundling the after sales service with the purchase of new units, Harry's HVAC is able to ensure that customers receive the highest quality of service and support for their units. This can help to prevent customers from seeking out cheaper or lower-quality servicing options, which could potentially lead to issues with the units that would reflect poorly on the company's reputation. By providing a comprehensive after sales service, Harry's HVAC can ensure that its customers are satisfied with both the product and the level of support they receive.

Question 6

​In the problem of double marginalization,the resulting price is ______than if the manufacturer were to sell directly to the consumer
A)​Higher
B)Lower
C)The same
D)​None of the above

Accepted Answer

In the problem of double marginalization, both the manufacturer and the retailer add their own margins to the product, leading to a higher final price for the consumer. If the manufacturer were to sell directly to the consumer, only one margin would be added, resulting in a lower price. Thus, the resulting price in double marginalization is higher than if the manufacturer were to sell directly to the consumer.

Question 7

​The conditions in which vertical relationships can enhance a firm's ability to price discriminate include
A)​the manufacturer's product is of value to just one type of customer
B)the costs of arbitraging the price difference across markets is small
C)the manufacturer acquires the distributer in the higher priced market
D)​competition provides little ability for the manufacturer to price above marginal cost

Accepted Answer

Vertical relationships can enhance a firm's ability to price discriminate when the costs of arbitraging the price difference across markets is small, meaning that it is difficult for customers to buy the product in one market and resell it in another market. This allows the manufacturer to charge different prices in different markets without the risk of arbitrage, allowing for effective price discrimination. The other choices do not necessarily apply to all situations in which vertical relationships can enhance a firm's ability to price discriminate.

Question 8

​Mechanisms that manufacturers can use to deal with misaligned retailer incentives include
A)​setting a minimum retail price
B)providing an exclusive contract to a single retailed in a market
C)compensating retailers' sales staff for demonstrating,as well as selling,the product
D)​All of the above

Accepted Answer

The best choice is D because setting a minimum retail price can prevent retailers from lowering the price too much, providing an exclusive contract to a single retailer can ensure that the retailer is fully committed to selling the product and not promoting competitors, and compensating retailers' sales staff for demonstrating the product can incentivize them to educate customers about the product, leading to increased sales. Therefore, using all three of these mechanisms can help manufacturers deal with misaligned retailer incentives.

Question 9

​The conditions in which vertical relationships can enhance a firm's ability to price discriminate include
A)​the manufacturer's product is of value to just one type of customer
B)the costs of arbitraging the price difference across markets is large
C)the manufacturer acquires the distributer in the higher priced market
D)​lack of competition provides the manufacturer with the ability to price above marginal cost

Accepted Answer

The answer of ​The conditions in which vertical relationships can...

Question 10

​Double markup problems arise when
A)​upstream firms have 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 increase the demand for the other product

Accepted Answer

Double markup problems occur when upstream firms have market power, which means they can charge high prices for their inputs, and downstream firms have to pay these high prices and then mark up their final products even more. This leads to higher prices for consumers and may reduce overall welfare in the market.

Question 11

​Vertical relationships can increase profits through
A)​preventing firms from evading regulation
B)eliminating a double-markup problem
C)making the incentives of manufacturers and retailers unaligned
D)​preventing price discrimination

Accepted Answer

Vertical relationships can eliminate a double-markup problem, which occurs when multiple intermediaries mark up the price of a product along the supply chain, resulting in a higher final price for consumers. By having a direct relationship between the manufacturer and retailer or supplier and distributor, the middlemen can be removed, and the cost savings can be passed on to the consumer. This can increase profits for both the manufacturer and the retailer/supplier by increasing demand and lowering costs, respectively.

Question 12

​The conditions in which vertical relationships can enhance a firm's ability to price discriminate include
A)​the manufacturer's product is of value to multiple types of customers
B)the costs of arbitraging the price difference across markets is large
C)the manufacturer acquires the distributer in the higher priced market
D)​competition provides little ability for the manufacturer to price above marginal cost

Accepted Answer

The answer of ​The conditions in which vertical relationships can...

Question 13

​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 complementary in demand 
D)​upstream and downstream firm's pricing decisions tend to increase the demand for the other product

Accepted Answer

Double markup problems arise when upstream and downstream products are complementary in demand, meaning that the demand for a downstream product is affected by the price of an upstream product. This allows both the upstream and downstream firms to have market power and mark up prices, resulting in double markups and a decrease in overall economic welfare.

Question 14

​The problem of "double marginalization" is
A)​The retail price being too low due to an exclusion of both manufacturer and retailer markup
B)The retail price being too high due to an inclusion of manufacturer markup
C)The retail price being too high due to an inclusion of both manufacturer and retailer markup
D)​The retail price being too high due to an exclusion of retailer markup

Accepted Answer

Double marginalization refers to the problem of both the manufacturer and the retailer adding markups to the price of a product, which can result in a higher retail price than necessary. This leads to decreased demand for the product and ultimately lowers overall profits. Therefore, the retail price being too high due to an inclusion of both manufacturer and retailer markup (Option C) is the correct answer.

Question 15

​The problem of "double marginalization" is
A)​The retail price being too high due to an inclusion of both manufacturer and retailer markup
B)The retail price being too low due to an exclusion of both manufacturer and retailer markup
C)The retail price being too high due to an exclusion of manufacturer markup
D)​The retail price being too low due to an exclusion of retailer markup

Accepted Answer

Double marginalization refers to a situation where both the manufacturer and the retailer add markups to a product, leading to a higher retail price than necessary. This can result in reduced consumer demand, lower profits for both the manufacturer and retailer, and can also create a barrier to entry for new competitors.

Question 16

​Coco chocolate manufacturers recently decided to "gift" one of its retailers a refrigerator.Why would it want to do that?
A)​To ensure the retailer knowledge of their generosity
B)To ensure the retailers knowledge of their quality
C)To ensure the freshness of the product that reaches their consumers
D)​To ensure the retailers decrease in price

Accepted Answer

Coco chocolate manufacturers would want to gift a refrigerator to their retailer to ensure the freshness of the chocolates that reach their consumers. The refrigerator would help keep the chocolates from melting or getting spoiled, ensuring that the consumers get a high-quality product. A and B are not relevant to the objective of gifting a refrigerator, and D does not make sense as decreasing the price would not require the need for a refrigerator.

Question 17

​The problem of "double marginalization" is
A)​The retail price being too low due to an absence of both manufacturer and retailer markup
B)The retail price being too high due to the existence of both manufacturer and retailer markup
C)The retail price consisting only of the manufacturer markup
D)​The retail price consisting only of the retailer markup

Accepted Answer

Double marginalization refers to a situation where both the manufacturer and retailer add their own markups to the price of a product, resulting in a higher retail price than if only one markup was applied. This can lead to higher prices for consumers and reduced demand for the product. Therefore, option B is the correct choice.

Question 18

​Harry's HVAC refuses to sell diagnostic software and spare parts of its heating and cooling systems to third parties.Why would it want to do that?
A)​To ensure that the customer knows that they are stuck with Harry's service technicians
B)To ensure that only the highest paid personnel get to service the units
C)To ensure that the customers do not buy second-class servicing and then infer faulty design if a unit breaks down due to inadequate service
D)​All of the above

Accepted Answer

By not selling diagnostic software and spare parts to third parties, Harry's HVAC can ensure that the customers do not buy second-class servicing and then infer faulty design if a unit breaks down due to inadequate service. This protects the reputation of the company and ensures that customers receive quality service. Option A and B are not accurate as they do not give direct benefits to the company.

Question 19

​The conditions in which vertical relationships can enhance a firm's ability to price discriminate include
A)​the manufacturer's product is of value to just one type of customer
B)the costs of arbitraging the price difference across markets is large
C)the manufacturer acquires the distributer in the lower priced market
D)​competition provides little ability for the manufacturer to price above marginal cost

Accepted Answer

The answer of ​The conditions in which vertical relationships can...

Question 20

​Vertical relationships can increase profits through
A)​preventing firms from evading regulation
B)creating a double-markup problem
C)better aligning the incentives of manufacturers and retailers
D)​preventing price discrimination

Accepted Answer

Vertical relationships can allow for better communication and coordination between manufacturers and retailers, leading to more efficient and effective distribution of goods. This can also lead to better supply chain management and cost control, ultimately leading to increased profits for both parties involved.

Quiz 21: Managing Vertical Relationships

​Harry's HVAC sells its new units with locked and encrypted servicing software,which only Harry's own service technicians can operate.Why would it want to do that?

​Double markup problems arise when

​Vertical relationships can increase profits through

​In the problem of double marginalization,the resulting price is ______than if the manufacturer and the retailer were to merge

​Harry's HVAC sells its new units bundled with after sales service.Why would it want to do that?

​In the problem of double marginalization,the resulting price is ______than if the manufacturer were to sell directly to the consumer

​The conditions in which vertical relationships can enhance a firm's ability to price discriminate include

​Mechanisms that manufacturers can use to deal with misaligned retailer incentives include

​The conditions in which vertical relationships can enhance a firm's ability to price discriminate include

​Double markup problems arise when

​Vertical relationships can increase profits through

​The conditions in which vertical relationships can enhance a firm's ability to price discriminate include

​Double markup problems arise when

​The problem of "double marginalization" is

​The problem of "double marginalization" is

​Coco chocolate manufacturers recently decided to "gift" one of its retailers a refrigerator.Why would it want to do that?

​The problem of "double marginalization" is

​Harry's HVAC refuses to sell diagnostic software and spare parts of its heating and cooling systems to third parties.Why would it want to do that?

​The conditions in which vertical relationships can enhance a firm's ability to price discriminate include

​Vertical relationships can increase profits through

Harry's HVAC sells its new units with locked and encrypted servicing software,which only Harry's own service technicians can operate.Why would it want to do that?

Double markup problems arise when

Vertical relationships can increase profits through

In the problem of double marginalization,the resulting price is ______than if the manufacturer and the retailer were to merge

Harry's HVAC sells its new units bundled with after sales service.Why would it want to do that?

In the problem of double marginalization,the resulting price is ______than if the manufacturer were to sell directly to the consumer

The conditions in which vertical relationships can enhance a firm's ability to price discriminate include

Mechanisms that manufacturers can use to deal with misaligned retailer incentives include

The conditions in which vertical relationships can enhance a firm's ability to price discriminate include

Double markup problems arise when

Vertical relationships can increase profits through

The conditions in which vertical relationships can enhance a firm's ability to price discriminate include

Double markup problems arise when

The problem of "double marginalization" is

The problem of "double marginalization" is

Coco chocolate manufacturers recently decided to "gift" one of its retailers a refrigerator.Why would it want to do that?

The problem of "double marginalization" is

Harry's HVAC refuses to sell diagnostic software and spare parts of its heating and cooling systems to third parties.Why would it want to do that?

The conditions in which vertical relationships can enhance a firm's ability to price discriminate include

Vertical relationships can increase profits through