For products where the firm has market power,two-part tariffs can be used to achieve coordination in the supply chain and maximize supply chain profits.

Question

Quizplus · Accepted Answer

Two-part tariffs can incentivize upstream firms to produce more output and downstream firms to sell it at the optimal price, which can lead to coordination in the supply chain and higher profits for all parties involved. When the firm has market power, it can set prices and quantities to maximize its own profits, but using two-part tariffs can provide a mechanism for aligning incentives and coordinating behavior throughout the supply chain.

For Products Where the Firm Has Market Power,two-Part Tariffs Can