Blockbuster’s online rental service (www.blockbuster.com) allows customers to return a limited number of movies to their local Blockbuster store in exchange for a free movie rental.

Required:

1. Visit Blockbuster.com and identify a service plan that allows for this type of movie exchange. How many movies can customers exchange each month? What is the monthly fee?

2. Describe the transfer pricing issue that arises between Blockbuster.com and the local Block-buster store. Explain how one division is providing services to another division. Should the local Blockbuster store earn revenue on this type of transaction? Why or why not?

3. What are the variable costs to the Blockbuster store of participating in a movie exchange? How much would you estimate the variable cost to be?

4. Are there any opportunity costs of a movie exchange?

5. What do you think is a “fair” transfer price for a movie exchange?