Long-term contracts:
A) are preferable to short-term contracts when there is a minimal need for cooperation.
B) are preferable to vertical integration when it is not feasible to exchange hostages.
C) generally result in lower prices than competitive bidding.
D) achieve the same outcomes as vertical integration, but they incur higher bureaucratic costs.
E) are a low-cost alternative to vertical integration when it is possible to build cooperative relationships with suppliers.

Question

Quizplus · Accepted Answer

Long-term contracts are a low-cost alternative to vertical integration when it is possible to build cooperative relationships with suppliers. This option allows for flexibility and avoids the high bureaucratic costs associated with vertical integration. Additionally, long-term contracts can lead to economies of scale and lower transaction costs over time.

Long-Term Contracts