Double markup problems arise because
A) upstream firms have no market power
B) downstream firms have no market power
C) upstream and downstream products are complementary in demand
D) upstream and downstream firm's pricing decisions tend to increase the demand for the other product

Question

Quizplus · Accepted Answer

Double markup problems arise when upstream and downstream products are complementary in demand. This means that the demand for the downstream product is dependent on the upstream product, and vice versa. As a result, both firms have some market power and can set their prices higher than they would if the products were not complementary. This leads to double markup, where each firm adds a markup to their prices, resulting in higher prices for consumers.

Double Markup Problems Arise Because