Double Marginalisation Effect Within Logistics Chain

Drago Pupavac ()
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Business Logistics in Modern Management, 2008, vol. 8, 55-66

Abstract: Double marginalization occurs in vertical industries when both the upstream and downstream firms have monopoly power. Each firm reduces output from the competitive level to the monopoly level,creating two deadweight losses. This market myopia creates a "vertical externality" that vertical integration would internalize. In order to prove the hypothesis about building strategic partnership and collaboration as a way to remove the effect of double marginalization we have been focused on the research about relationship among active participants in the logistic chain. The practical example proves that integrated logistics chain makes more profit than the nonintegrated logistics chain, and the consumer price is lower in the case of the integrated logistics chain. Scientific methods applied in confirming this hypothesis are based on descriptive method, method of analysis and synthesis, method of compilation and mathematical method.

Keywords: logistics chains; double marginalization; “vertical externality”; vertical integration (search for similar items in EconPapers)
Date: 2008
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