1) Supplier and Retail Firm A retail-level firm has a contract to sell a single unit of a good to a consumer for 10$. Not delivering the good leads to no payment from the consumer along with a penalty of 5$ to be paid to the consumer by the firm as per the contract between the firm and the consumer. The retail-level firm must also pay an operating cost of 3$ in order to stay in business and in order to be able to deliver the good. This cost must be paid even if the firm decides not to sell the good. Failing to deliver the good and having to pay the penalty and the other costs would lead to the retail firm going out of business. A supplier firm is the only firm in the world that can build the good. The supplier can build the good for 2$ and does so after an order is made. The supplier cannot sell directly to the consumer and there is only one retail firm in this market. Both the supplier and the retailer only care about their own private profit. There is no contract at this point between the retailer and the supplier but offers made are binding if they are accepted. a) If the firm can make a take-it or leave-it offer to the supplier, what would that offer be? Would that answer be different if the retail firm knows that the supplier has already built a unit of the good? b) What price would the supplier offer if it gets to make a take-it or leave-it offer to the retail firm? Would that offer be different if the retail firm only had to pay the operating cost after buying the good from the supplier? Now suppose that the contract between the consumer and the firm is of an infinite duration. Time is discrete and the per-period prices and costs are the same as in the one-shot game described earlier. Assume that everyone in that world has a discount factor of B=0.9 Offers made are binding contracts if accepted. Offers must take the form of period price. If in any period the retail firm cannot deliver the good, the retail firm goes out of business. constant per- c) If the firm can make a take-it or leave-it offer to the supplier, what would that offer be?
1) Supplier and Retail Firm A retail-level firm has a contract to sell a single unit of a good to a consumer for 10$. Not delivering the good leads to no payment from the consumer along with a penalty of 5$ to be paid to the consumer by the firm as per the contract between the firm and the consumer. The retail-level firm must also pay an operating cost of 3$ in order to stay in business and in order to be able to deliver the good. This cost must be paid even if the firm decides not to sell the good. Failing to deliver the good and having to pay the penalty and the other costs would lead to the retail firm going out of business. A supplier firm is the only firm in the world that can build the good. The supplier can build the good for 2$ and does so after an order is made. The supplier cannot sell directly to the consumer and there is only one retail firm in this market. Both the supplier and the retailer only care about their own private profit. There is no contract at this point between the retailer and the supplier but offers made are binding if they are accepted. a) If the firm can make a take-it or leave-it offer to the supplier, what would that offer be? Would that answer be different if the retail firm knows that the supplier has already built a unit of the good? b) What price would the supplier offer if it gets to make a take-it or leave-it offer to the retail firm? Would that offer be different if the retail firm only had to pay the operating cost after buying the good from the supplier? Now suppose that the contract between the consumer and the firm is of an infinite duration. Time is discrete and the per-period prices and costs are the same as in the one-shot game described earlier. Assume that everyone in that world has a discount factor of B=0.9 Offers made are binding contracts if accepted. Offers must take the form of period price. If in any period the retail firm cannot deliver the good, the retail firm goes out of business. constant per- c) If the firm can make a take-it or leave-it offer to the supplier, what would that offer be?
Principles Of Marketing
17th Edition
ISBN:9780134492513
Author:Kotler, Philip, Armstrong, Gary (gary M.)
Publisher:Kotler, Philip, Armstrong, Gary (gary M.)
Chapter1: Marketing: Creating Customer Value And Engagement
Section: Chapter Questions
Problem 1.1DQ
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Transcribed Image Text:1) Supplier and Retail Firm
A retail-level firm has a contract to sell a single unit of a good to a consumer for 10$. Not
delivering the good leads to no payment from the consumer along with a penalty of 5$ to be paid
to the consumer by the firm as per the contract between the firm and the consumer.
The retail-level firm must also pay an operating cost of 3$ in order to stay in business and in
order to be able to deliver the good. This cost must be paid even if the firm decides not to sell
the good. Failing to deliver the good and having to pay the penalty and the other costs would
lead to the retail firm going out of business.
A supplier firm is the only firm in the world that can build the good. The supplier can build
the good for 2$ and does so after an order is made. The supplier cannot sell directly to the
consumer and there is only one retail firm in this market.
Both the supplier and the retailer only care about their own private profit. There is no contract
at this point between the retailer and the supplier but offers made are binding if they are accepted.
a) If the firm can make a take-it or leave-it offer to the supplier, what would that offer be?
Would that answer be different if the retail firm knows that the supplier has already built
a unit of the good?
b) What price would the supplier offer if it gets to make a take-it or leave-it offer to the retail
firm? Would that offer be different if the retail firm only had to pay the operating cost
after buying the good from the supplier?
Now suppose that the contract between the consumer and the firm is of an infinite duration.
Time is discrete and the per-period prices and costs are the same as in the one-shot game
described earlier. Assume that everyone in that world has a discount factor of B=0.9
Offers made are binding contracts if accepted. Offers must take the form of a constant per-
period price. If in any period the retail firm cannot deliver the good, the retail firm goes out of
business.
c) If the firm can make a take-it or leave-it offer to the supplier, what would that offer be?
d) What offer would the supplier do if it gets to make a take-it or leave-it offer to the retail
firm?
e) Compare your answers to your answers in the one-shot game and explain how and why the
answers differ and how and why the answers are similar.
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