Answer the MCQs by Considering the following scenario with three possible suppliers, Coke, Pepsi, and three possible bottlers. Assume that:

3 suppliers: all three suppliers are equally efficient and have a WTS of $1 (this is their cost of producing ingredients for natural flavoring).

3 bottlers: Two of the bottlers have a WTP of $10 (this is what a grocery will pay them for the soda). The third bottler has better relationships with local grocers and and can get $11 (i.e. the third bottler's WTP is $11).

Production happens when a supply chain of one supplier, either Coke or Pepsi, and one bottler come to an agreement to work together. For example: Supplier B, Pepsi, and Bottler 3 might work together. Note that more than one supply chain can exist, however, each party can only participate in one supply chain.

Q.1 What's the most value that the better bottler (i.e., bottler 3 with WTP=$11) can conceivably negotiate to capture?

$0

$1

$9

$10

$11

Q.2 Assume that bottler 1 shuts down so that only Bottlers 2 and 3 are left. What's the most value that bottler 3 can negotiate to capture now?

$0

$1

$9

$10

$11

Q.3 Which of the following is likely to result in a WTP increase for products in an industry?

A subsidy for complements

Supplier consolidation

Expiration of a patent for the production technology

A technological advance for substitutes