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MS-131 Double Marginalization v05

[Market Simulation] MS-131 Double Marginalization
Market Simulation (MS-131) - Double Marginalization - Part 1Illustrates how a supply chain of Wholesaler to Retailer to Consumer will beinefficient and add unnecessary economic deadweight loss. The DoubleMarginalization problem is resolved if the Wholesaler and the Retailer merge.The loop jumps between the Wholesaler and the Retailer. Each sets theirProfit Maximizing Price based upon the demand they see. The loop continuesuntil an equilibrium is found. From Wikipedia:https://en.wikipedia.org/wiki/Mergers_and_acquisitionsA common example of such an externality is double marginalization. Doublemarginalization occurs when both the upstream and downstream firms havemonopoly power and each firm reduces output from the competitive level to themonopoly level, creating two deadweight losses. After a merger, the verticallyintegrated firm can collect one deadweight loss by setting the downstream firm'soutput to the competitive level. This increases profits and consumer surplus. Amerger that creates a vertically integrated firm can be profitable. Retailer WTP as seen by WholesalerPrice = Starting Wholesaler PriceCost = Manufacture Cost Equilibrim found in 3iterations Market Simulation (MS-131) - Double Marginalization - Part 2After the Wholesaler merges with the Retailer and forms a direct channel tothe end customer, customer sales and total profitability for the Mergedcompany increases. Total Profitability generated by Retailerand Wholesaler combined is:$229,046 Total Profitability generated by Merged company is:$255,060 (about $30,000 more than the $223,527 totalgenerated down the Wholesaler-Retailer supply chain) ProductCustomer WTPStartingRetailerMargin ($)Retailer WTPSeen by WholesalerWholesaler sees RetailerWTPWholesalersetsProfit Maximizing PriceFindRetailerMarginSteady State EquilibriumWholesalerPrice toRetailerWholesalerPrice toRetailerSet Retailer Costand Starting PriceRetailer seesCustomer WTPRetailersetsProfit Maximizing PriceCalculate NewRetailerMarginRetailerPrice toCustomerCalculate NewRetailerMarginFindRetailerMarginSteady State EquilibriumGet LastIterationGet LastIterationWholesalerRevenue ProfitTotal ProfitWholesalervs RetailerWholesalerCostRe-injectWholesalerCostWholesalerCostProductSalesWholesalerCostProductCustomer WTPProductCostMerged Companysets singleProfit Maximizing PriceRetailerMarginWholesalerCost CustomerDistributions Table Creator Math Formula Table Creator Profit Engine RecursiveLoop Start Row Filter Column Filter Java Snippet ConstantValue Column Profit Engine Math Formula Row Filter Column Filter Recursive Loop End Sorter Row Filter Java Snippet Column Rename Math Formula ConstantValue Column Math Formula(Variable) Column Filter ConstantValue Column Table Creator ConstantValue Column Profit Engine Table Rowto Variable Market Simulation (MS-131) - Double Marginalization - Part 1Illustrates how a supply chain of Wholesaler to Retailer to Consumer will beinefficient and add unnecessary economic deadweight loss. The DoubleMarginalization problem is resolved if the Wholesaler and the Retailer merge.The loop jumps between the Wholesaler and the Retailer. Each sets theirProfit Maximizing Price based upon the demand they see. The loop continuesuntil an equilibrium is found. From Wikipedia:https://en.wikipedia.org/wiki/Mergers_and_acquisitionsA common example of such an externality is double marginalization. Doublemarginalization occurs when both the upstream and downstream firms havemonopoly power and each firm reduces output from the competitive level to themonopoly level, creating two deadweight losses. After a merger, the verticallyintegrated firm can collect one deadweight loss by setting the downstream firm'soutput to the competitive level. This increases profits and consumer surplus. Amerger that creates a vertically integrated firm can be profitable. Retailer WTP as seen by WholesalerPrice = Starting Wholesaler PriceCost = Manufacture Cost Equilibrim found in 3iterations Market Simulation (MS-131) - Double Marginalization - Part 2After the Wholesaler merges with the Retailer and forms a direct channel tothe end customer, customer sales and total profitability for the Mergedcompany increases. Total Profitability generated by Retailerand Wholesaler combined is:$229,046 Total Profitability generated by Merged company is:$255,060 (about $30,000 more than the $223,527 totalgenerated down the Wholesaler-Retailer supply chain) ProductCustomer WTPStartingRetailerMargin ($)Retailer WTPSeen by WholesalerWholesaler sees RetailerWTPWholesalersetsProfit Maximizing PriceFindRetailerMarginSteady State EquilibriumWholesalerPrice toRetailerWholesalerPrice toRetailerSet Retailer Costand Starting PriceRetailer seesCustomer WTPRetailersetsProfit Maximizing PriceCalculate NewRetailerMarginRetailerPrice toCustomerCalculate NewRetailerMarginFindRetailerMarginSteady State EquilibriumGet LastIterationGet LastIterationWholesalerRevenue ProfitTotal ProfitWholesalervs RetailerWholesalerCostRe-injectWholesalerCostWholesalerCostProductSalesWholesalerCostProductCustomer WTPProductCostMerged Companysets singleProfit Maximizing PriceRetailerMarginWholesalerCostCustomerDistributions Table Creator Math Formula Table Creator Profit Engine RecursiveLoop Start Row Filter Column Filter Java Snippet ConstantValue Column Profit Engine Math Formula Row Filter Column Filter Recursive Loop End Sorter Row Filter Java Snippet Column Rename Math Formula ConstantValue Column Math Formula(Variable) Column Filter ConstantValue Column Table Creator ConstantValue Column Profit Engine Table Rowto Variable

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Created by: Berlin
Created at: 2018-06-13
On NodePit since: 2021-02-05
Last update: 2024-04-27
Created with KNIME version: v4.3.0

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