Vecon Lab Vertical Monopoly: Introduction

This program sets up a class of vertically related markets, as described in "Double Monopoly: A Classroom Experiment," by Narine Badasyan, Jacob Goeree, Monica Hartmann, Charles Holt, John Morgan, Tanya Rosenblat, and Dirk Yandell. The first mover (wholesaler) in each group selects a wholesale price, and the second movers (retail monopolists in local markets) choose their whole purchase quantities and retail price levels. The equilibrium for vertically related monopolists produces a quantity restriction, even relative to a vertically integrated monopolist, and therefore, the vertical integration "solution" can be implemented in a second treatment option. A third treatment option lets the wholesaler set a wholesale price and a fixed franchise fee, but "fairness" considerations tend to interfere with this solution to the double marginalization problem.

The vertical monopoly game is appropriate for a wide range of microeconomics and industrial organization classes. The data graphs produce MR and MC lines for both upstream and downstream producers; these lines can be hidden or shown during class discussion.

Vecon Lab - September 2, 2014