ABSTRACT
This chapter explains that the message is emphasized by giving examples of situations where the impact of a grading scheme appears perfectly obvious, but because of the market structure, the actual effect is exactly the opposite of that expected. The assumption that retailers have traditional margins and identical demand functions implies that the excess profit of retailers arising from the improved retailers' quality will not be competed away by price cutting. It is assumed that retailers buy in a perfect market, but because of locational monopolies and so on, they sell at different prices. The chapter suggests that the practice of giving discounts for bulk sales reduces marketing efficiency in many ways. The producers who produce the most desirable quality in the right amounts get a lower price. Discounts are sometimes given when costs are reduced, when, for instance, produce is delivered direct to the shop instead of going through the usual market channels.
