Final answer:
A manufacturer setting prices for its products in export markets must be aware of how CAF, VAT, duties, and distributor margins can lead to price escalation.
Step-by-step explanation:
When a manufacturer sets prices for its products in export markets, it must take into consideration various factors such as CAF, VAT, duties, and distributor margins. These factors can lead to price escalation, which means that the final selling price of the product increases as it moves along the value chain in the export market.
For example, let's say a manufacturer in Country A exports a product to Country B. Along the value chain, various costs are added such as transportation costs, distribution costs, and taxes like CAF, VAT, and duties. Additionally, distributors may add their own margin to the selling price. All these factors contribute to the overall increase in the price of the product, resulting in price escalation.