$1.$A company needs a specialized component for its flagship product. Three procurement options are available: $1)$ Spot exchange: readily available but prices fluctuate significantly. $2)$ Contract: a stable price can be negotiated with a supplier, but requires a substantial upfront investment in relationship$-$specific assets. $3)$ Vertical integration: offers maximum control but entails

significant setup costs and ongoing management overhead. Under which of the following market conditions would vertical integration be the MOST strategically sound procurement method?

A$)$ The component is somewhat specialized, several suppliers exist, and short$-$term contracts are readily available with minimal transaction costs.

B$)$ The component is standardized, readily available through multiple suppliers, and market prices are stable.

C$)$ The component is moderately specialized, a reliable supplier exists, and a long$-$term contract can be established with moderate upfront investment.

D$)$ The component is highly specialized, the market for the component is experiencing high volatility, and long$-$term contracts are difficult to enforce.