An upstream firm (U) sells an input to a downstream firm (D) which resells it to consumers.
Question:
An upstream firm (U) sells an input to a downstream firm (D) which resells it to consumers.
The marginal cost of U is 4. Each unit is sold by U to D at a transfer price r. Requirement
final is p = 12 - y.
a) Suppose U and D are separate firms. Find r, y and p.
b) Suppose U and D are one integrated firm. Find p and y.
c) Suppose the firms are not integrated, but firm U uses a two-part tariff: it requires payment of r for each unit sold to D; in addition, it requires payment lump sum of T. Find the value of r that U will choose. Find the minimum and maximum values by T.
d) Suppose the firms are not integrated, but U imposes a resale price control on firm D. Find the value of r that U will choose, and the constraint that it will impose on the price final p.
