Question $111$ pts

$"$We consider a buyer and seller who are involved in a $($long$-$term$)$ economic relationship where the buyer$$s value and seller$$s cost are initially uncertain. For the relationship to work out, the parties need to cooperate in ways that cannot be specified in an initial contract.

Suppose that the parties write a rigid contract that fixes price. Such a contract works well in "normal" times because there is nothing to argue about: we assume that, in the absence of argument, the parties are willing to cooperate.

However, if value or cost falls outside the normal range, one party will have an incentive to threaten to withhold cooperation unless the contract is renegotiated; that is the party will engage in $\_\_\_\_\_\_\_\_\_\_"[$fill in the blank below$]$

Group of answer choices

Moral Hazard

Hold up

Economies of scale

Lack of flexibility

Flag question: Question $12$

Question $121$ pts

The biopharma department at a large public research university $($aka $$Department$)$ has created what may be a new blockbuster drug for cancer treatment. There is still much uncertainty associated with the drug$$s development and commercialization. The Department wants to create a joint venture with a pharma company to develop and commercialize the drug $($e$.$g$.,$ to bring it to market$).$ However, some folks are proposing that instead of a joint venture, the two parties should merge $($integrate$).$ What would a real options approach suggest that the Department should do$?$

Group of answer choices

Merge$/$integrate with the pharma company because it will be easier.

Create the joint venture because there is high uncertainty in this transaction.

Flag question: Question $13$

Question $131$ pts

What is the primary question to ask when considering whether or not to vertically integrate?

Group of answer choices

Should you buy all of your competitors to gain competitive advantage?

Should you have multiple parts of the supply chain within your company to create more value?

Should you organize your company in M$-$form to promote efficiencies?

Flag question: Question $14$

Question $141$ pts

Any time you transact in the market $($e$.$g$.,$ with another company$)$ there are costs associated with that transaction.

Group of answer choices

True

False

Flag question: Question $15$

Question $151$ pts

Forward vertical integration brings you closer to the consumer.

Group of answer choices

True

False

Flag question: Question $16$

Question $161$ pts

Robust internal capital markets are an effect of firms benefitting from

Group of answer choices

financial economies of scope

VRIO

Economies of scale

Flag question: Question $17$

Question $171$ pts

Riley runs a successful restaurant chain. However, she is running into a problem whereby some of her restaurant locations have difficulty staffing the kitchens on weekends. Riley looks at her payroll data and talks to the managers of each of the restaurants. She finds out that in the restaurants that successfully staff the kitchen on weekends, pay for kitchen staff is $20\%$ higher than at the restaurants that cannot fully staff the kitchen and the managers at the successful locations also split their tips with the kitchen staff. What might Riley do to be most effective in ensuring all her restaurants can staff their kitchens on weekends?

Group of answer choices

Close down the restaurants that she can$$t staff.

Standardize pay increases to kitchen staff and institute performance evaluations$/$metrics for managers to ensure incentives are aligned.

Interview the kitchen staff that have quit to understand why they quit.

Flag question: Question $18$

Question $181$ pts

Efficient internal capital markets are difficult to copy.

Group of answer choices

True

False

Flag question: Question $19$

Question $191$ pts

A goal of diversification is to destroy synergies within the corporate parent.

Group of answer choices

True

False

Flag question: Question $20$

Question $201$ pts

What are some ways to limit the potential downsides of a strategic alliance?

Group of answer choices

Try to induce your partner to make transaction specific investments so that you can hold them up$.$

Rigorous contracting that addresses the potential for holdup, appropriability, moral hazard issues; also doing due diligence.

Don$$t do any strategic alliances to avoid the downsides.