Suppose one car manufacturer sells to two dealers. The dealers are engaged in price and service competition such that they must choose the level of...

1.    Suppose one car manufacturer sells to two dealers. The dealers are engaged in price and service competition such that they must choose the level of service and market price to maximize profits. However the dealers may offer different levels of services (i.e. high-service or low-service).

a.    What concern might the manufacturer have with respect to the level of dealers' services in this market?

b.    Explain how a Retail Price Maintenance agreement might remedy the problem you identified in part a.

c.    Explain how a contract that forces exclusive territories (e.g. each dealer in a separate geographic location) might remedy the problem you identified in part a. Draw a diagram (like we did in class) to support your answer.