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Terms in this set (22)
Name four instances where property rights matter for coordination of activities
2. Disincentives to invest
3. Incentives and monitoring
4. Information leakages
Occurs when there are relationship-specific investments. These are investments made by a buyer or seller that is necessary to engage in the interaction, which is also irreversible and less valuable in a transaction with a different party. In opportunistic situations parties may refuse to make investments to make the transaction successful for fear of hold up.
Disincentives to invest
When profit sharing contracts split the surplus a party receives from an investment the party may not take new investment opportunities even though they could benefit the joint venture.
Incentives and monitoring
The ability to coordinate within a firm depends on the ability to coordinate effort. In some situations giving up residual control rights may be better if monitoring effort is hard.
When two parties work together they are exposing themselves to supply side risks in the form of information leakages.
When one party to a transaction has access to relevant information that the other party doesn't, i.e. doctor.
an action taken by an informed party to reveal private information to an uninformed party
a principal attempting to elicit information an agent has hidden
When does signaling work?
When the actions taken to signal are credible. A credible signal only works if the action taken must be more costly for those without the property an agent is signaling.
Performance-based compensation is more effective in environments without:
1. Interdependence problems
2. Control Problems
3. Selection Problems
4. Alignment Problems
Collaboration is essential
An individual cannot affect the outcome or the goals are unrealistic.
When the wrong people are attracted by the performance-based compensation plan
When the outcome is not measurable or important to the company
What conditions need to hold for authorities to block mergers?
1. The market is already sufficiently concentrated
2. Merger would significantly increase market concentration
What is the trade-off for mergers?
Mergers decrease the intensity of price competition but cost savings from economies of scale can benefit consumers.
A strategy by which an incumbent firm invests in excess capacity to discourage entry by new firms
An action taken by a firm to "force" other firms to exit the market
After the merger the integrated supplier may withhold the input from firms in need of it.
Forcing the customer to purchase two or more products together.
Compatibility of technologies
When one party does not let another firm use a product they own.
Cross-advertising across product lines
Imposing products on a customer when they purchase a different product so they have little reason to find an alternative.
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