Double Marginalization and the Decentralized Supply Chain (White Paper Excerpt)

PI Blogger — Wed, 23 Apr 2008 14:53:46 +0100

Double marginalization is defined as the “exercise of market power at successive vertical layers in a supply chain.” Dating back to Lerner (1934) the problem that arises as a result of double marginalization is tied to an impetus to mark up the product’s price above marginal cost. According to a 2005 Caltech paper (Vertical Integration of Successive Monopolists: A Classroom Experiment) the sequence of mark-ups “leads to a higher retail price and lower combined profit for the supply chain than would arise if the firms were vertically integrated.”

vertically integrated supply chains

Double Marginalization and the Decentralized Supply Chain (White Paper Excerpt)