Vertical Integration of Successive Monopolists: A Classroom Experiment
AbstractThis classroom experiment introduces students to the concept of double marginalization, i.e. the exercise of market power at successive vertical layers in a supply chain. By taking on roles of firms, students determine how the mark-ups are set at each successive production stage. They learn that final retail prices tend to be higher than if the firms were vertically integrated. Students compare the welfare implications of two potential solutions to the double marginalization problem: acquisition and franchise fees. The experiment also can stimulate a discussion of two-part tariffs, transfer pricing, contracting, and the Coase theorem.
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Bibliographic InfoPaper provided by Iowa State University, Department of Economics in its series Staff General Research Papers with number 13027.
Date of creation: 01 Feb 2009
Date of revision:
Publication status: Published in Perspectives on Economic Education Research, Spring 2009, vol. 5 no. 1
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Postal: Iowa State University, Dept. of Economics, 260 Heady Hall, Ames, IA 50011-1070
Phone: +1 515.294.6741
Fax: +1 515.294.0221
Web page: http://www.econ.iastate.edu
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- Beth A. Freeborn & Jason P. Hulbert, 2011.
"Persuasive and Informative Advertising: A Classroom Experiment,"
The Journal of Economic Education, Taylor & Francis Journals,
Taylor & Francis Journals, vol. 42(1), pages 51-59, January.
- Beth A. Freeborn & Jason P. Hulbert, 2009. "Persuasive and Informative Advertising: A Classroom Experiment," Working Papers, Department of Economics, College of William and Mary 85, Department of Economics, College of William and Mary.
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