Lesson plan
Double marginalization
In industrial economics, double marginalization occurs when two firms at different levels of the supply chain possess market power and independently apply markups, resulting in a final price that is higher than it would be if the firms were integrated. Double marginalization is clearly negative from an economic welfare point of view, as the double markup leads to a final price is higher than the price that would maximize the firms' joint profit, lowering both producer and consumer surpluses. The situation arises from externalities: each firm does not fully take into account the impact of its pricing on the other firm.
Article summary
In industrial economics, double marginalization occurs when two firms at different levels of the supply chain possess market power and independently apply markups, resulting in a final price that is higher than it would be if the firms were integrated. Double marginalization is clearly negative from an economic welfare point of view, as the double markup leads to a final price is higher than the price that would maximize the firms' joint profit, lowering both producer and consumer surpluses. The situation arises from externalities: each firm does not fully take into account the impact of its pricing on the other firm.
Key claims
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Discussion questions
- Summarise the article in your own words. Which single claim would you verify first, and why?
- Which claim in this article is most likely to be revised as the sources update? How would you check its current status?
- If two sources disagreed about one of these facts, what would you need in order to trust one over the other?
Bibliography
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Key claims and bibliography are generated from the same tracked claims and sources as the article page.