In which of the following situations identified by Baron and Besanko will a matrix never be optimal regardless of any additional circumstances?
A)When spillovers are positively correlated and activities are profit complements
B)When activities are profit complements but spillovers are negatively correlated
C)If activities are profit substitutes and spillovers are positively correlated
D)If spillovers are negatively correlated and activities are profit substitutes
E)None of the above

Question

Quizplus · Accepted Answer

When spillovers are positively correlated and activities are profit complements, a matrix will never be optimal regardless of any additional circumstances. This is because in this situation, the benefits of cooperation outweigh the costs, and firms will always be better off cooperating than not cooperating.

In Which of the Following Situations Identified by Baron and Besanko