question archive A monopolistic producer of caviar has historically sold all of its caviar to 10 distributors
A monopolistic producer of caviar has historically sold all of its caviar to 10 distributors
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A monopolistic producer of caviar has historically sold all of its caviar to 10 distributors. Recently, one of the distributors has acquired all of its competitors, becoming the caviar producer’s sole customer. How are the caviar producer’s prices and profits likely to change as a result of this downstream consolidation?
Prices and profits will not change
Prices and profits will decrease
Prices and profits will increase
Prices will decrease and profits will not change
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Answer:
Due to consolidation of all distributors with one distributor, the monopolist producer of caviar will have to reduce the prices of caviar that will also reduce profits of monopolist firm. Therefore, the correct answer is prices and profits will decrease.
