Many manufacturers sell products labeled as having imperfections at a

Many manufacturers sell products labeled as having imperfections at a discount at their factory outlets but do not ship these imperfect goods to regular retail outlets. Why?

What will be an ideal response?

ANSWER

There is some substitutability between the goods, but imperfects sell for a lower price. Suppose, for example, the good sells for $2, but imperfects sell for $1. Both goods cost the same to ship, say $1. As a result, the relative price of an imperfect at a factory outlet is (1/2 ) but rises to (2/3 ) at the retail outlet, where imperfects will not sell because of the higher relative price.