Double Monopoly Markup

Abstract When manufacturing and distribution are undertaken by two successive monopolies, each firm, in its attempt to maximize its own profits, charges a price that contains a monopoly markup over its own marginal cost. This gives rise to the problem of double monopoly markup (also known as double marginalization). The overall result is higher prices for consumers, lower quantity sold, and lower consumer surplus for consumers. Further, the joint profit of the two successive monopoly firms is also less than what it would have been if the two firms were vertically integrated. Hence, there is a deadweight loss due to the double monopoly markup.