Which of the following causes finished goods prices not to maximize the joint profits of a manufacturer and its supplier? (a) Inefficient asset specificity (b) Lack of coordinated scope economies (c) Incomplete contracting (d) Double marginalization (e) Efficient compliance officers

Marketing Dec 21, 2020

Which of the following causes finished goods prices not to maximize the joint profits of a manufacturer and its supplier?

(a) Inefficient asset specificity

(b) Lack of coordinated scope economies

(d) Double marginalization

(e) Efficient compliance officers

Expert Solution

The correct answer is (d) Double marginalization.

This is because, when double marginalization arises, both the manufacturer and the supplier apply mark-ups on the goods sold. This double mark-up effect ends up creating a deadweight loss that results in joint profits not being maximized.

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