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?

Question

Business

Jayden Green

14 June, 06:01

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?

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Dillan West · Answer 1

Price and profits will decrease.

Explanation:

The price and profits of the caviar producer will change as a result of this downstream consolidation because the customer now has power to negotiate price with the seller, and prices will likely fall as a result. Profits will decrease as the customer capture an increased share of the surplus.