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Vertical Integration of Successive Monopolists: A Classroom Experiment

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  • Rosenblat, Tanya

Abstract

This 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.

Suggested Citation

  • Rosenblat, Tanya, 2009. "Vertical Integration of Successive Monopolists: A Classroom Experiment," Staff General Research Papers Archive 13027, Iowa State University, Department of Economics.
    • Handle: RePEc:isu:genres:13027
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    Cited by:

    1. Xu, Qi & Fu, Guanghua & Fan, Dandan, 2020. "Service sharing, profit mode and coordination mechanism in the Online-to-Offline retail market," Economic Modelling, Elsevier, vol. 91(C), pages 659-669.
    2. Beth A. Freeborn & Jason P. Hulbert, 2011. "Persuasive and Informative Advertising: A Classroom Experiment," The Journal of Economic Education, Taylor & Francis Journals, vol. 42(1), pages 51-59, January.
    3. Moellers, Claudia & Normann, Hans-Theo & Snyder, Christopher M., 2017. "Communication in vertical markets: Experimental evidence," International Journal of Industrial Organization, Elsevier, vol. 50(C), pages 214-258.

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