Hammacher Schlemmer Hammacher Schlemmer is a chain of retail ...

[Cooldude101]

Hammacher Schlemmer Hammacher Schlemmer is a chain of retail stores famous for introducing a steady flow of innovative new products to customers. When it negotiates for a new product, it often requires that it will get the exclusive rights to retail it for a year or two. Why is it advantageous to the supply chain for there to be an exclusive dealer and why for only a few years?

Question 2

For a firm to maximize total profits through price discrimination, it should
 a. Firms should charge a low price to high-value consumers and a high price to low-value consumers
  b. Firms should charge a high price to high-value consumers and a high price to low-value consumers
  c. Firms should charge a low price to high-value consumers and a low price to low-value consumers
  d. Firms should charge a high price to high-value consumers and a low price to low-value consumers

[al]

Answer to Question 1

Potential customers are unfamiliar with how most of these new products could benefit them. Hammacher Schlemmer must invest in customer education, advertising, and product demonstrations. Without exclusivity, another retailer could free-ride off of these services and undercut prices charged by Hammacher Schlemmer.

With enough time, the product is no longer new and customers become knowledgeable enough about the product that these demonstration services are less important. Further, when more retailers offer the product, they compete down retailer prices which will mitigate the double marginalization problem.

Answer to Question 2

d