When two or more divisions mark up prices in excess of marginal cost:
A) double marginalization occurs.
B) two-part pricing occurs.
C) second-degree price discrimination occurs.
D) None of the answers are correct.

Question

Quizplus · Accepted Answer

Double marginalization occurs when two or more divisions mark up prices in excess of marginal cost. This leads to higher prices for consumers and reduced output as each division tries to maximize its profits independently. With double marginalization, the total markups in the supply chain are higher than they would be if the divisions worked together to set prices based on the overall costs and demand in the market.

When Two or More Divisions Mark Up Prices in Excess