A hold-up problem can occur whenever _____ have been made.
A)contractual obligations
B)switching costs
C)relationship-specific investments
D)entry barriers

Question

Quizplus · Accepted Answer

Relationship-specific investments are investments made in a specific relationship that would have little value if the relationship ends. In a hold-up problem, one party may threaten to withhold necessary inputs or resources unless the other party agrees to certain demands, leading to a breakdown in the relationship and the loss of the investments made. Therefore, whenever relationship-specific investments have been made, a hold-up problem can occur. Contractual obligations and entry barriers may mitigate the risk of hold-up problems, but they are not necessary conditions for hold-up problems to arise. Switching costs may influence the parties' willingness to renegotiate, but they are not directly related to hold-up problems.

A Hold-Up Problem Can Occur Whenever _____ Have Been Made