What is the impact of the following factors on the optimal method of procuring a

Question

What is the impact of the following factors on the optimal method of procuring an input.

1. Benefits from specialization.

   (a) Reduce the benefits of vertical integration.
   (b) Reduce the benefits of contracts.
   (c) Increase the benefits of vertical integration.
   (d) Reduce the benefits of spot exchange.

2. Bureaucracy costs.

   (a) Reduce the benefits of contracts.
   (b) Increase the benefits of vertical integration.
   (c) Reduce the benefits of vertical integration.
   (d) Reduce the benefits of spot exchange.

3. Opportunism on either side of the transaction.

   (a) Lead to the use of spot exchange.
   (b) Lead to contracts that are more detailed or vertical integration.
   (c) Lead to less detailed contracts.

4. Specialized investments.

   (a) Make vertical integration unattractive.
   (b) Make spot exchange unattractive.
   (c) Make contracts unattractive.

5. Unspecifiable events.

   (a) Make spot exchange unattractive.
   (b) Make contracts unattractive.
   (c) Make vertical integration unattractive.

6. Bargaining costs.

   (a) Lead to spot exchange.
   (b) Lead to shorter contracts.
   (c) Lead to longer contracts or vertical integration.

Explanation / Answer

1. Benefits from specialization.

(a) Reduce the benefits of vertical integration.

2. Bureaucracy costs.

(c) Reduce the benefits of vertical integration.

3. Opportunism on either side of the transaction.

(b) Lead to contracts that are more detailed or vertical integration.

4. Specialized investments.

(b) Make spot exchange unattractive.

5. Unspecifiable events.

(b) Make contracts unattractive.

6. Bargaining costs.

(c) Lead to longer contracts or vertical integration.

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