Amal invests in equipment that allows him to win a contract to supply inputs to an interior designer. When the contract is up for renewal, the interior designer insists on no increases in the price she pays. This disappoints Amal, who wanted a price increase because some of his costs have risen, but he needs the sales to keep up with payments for the equipment. Amal is experiencing:
A)a hold-up problem.
B)switching costs.
C)investor's remorse.
D)specific-partner disadvantage.

Question

Quizplus · Accepted Answer

Amal is experiencing a hold-up problem, where he invested in equipment to win the contract but now the interior designer has all the bargaining power to demand no price increases.

Amal Invests in Equipment That Allows Him to Win a Contract