SparklingLeaves is one of the major suppliers of automobile tools to StanMotors, a leading automobile company. Many of the tools are customized to meet the specific needs of StanMotors and hence have little other value. In return, StanMotors has agreed to make SparklingLeaves its sole supplier of automobile equipment for a period of 15 years. This scenario illustrates:
A) horizontal integration.
B) credible commitment.
C) competitive bidding.
D) vertical integration.
E) parallel sourcing.

Question

Quizplus · Accepted Answer

The scenario illustrates credible commitment, where SparklingLeaves has made a commitment to meet the specific needs of StanMotors, and as a result, StanMotors has made a credible commitment to make SparklingLeaves its sole supplier of automobile equipment for a long period of time. This commitment reduces uncertainty and risks for both parties and ensures a long-term relationship. None of the other options (horizontal integration, competitive bidding, vertical integration, and parallel sourcing) address the commitment and mutual benefit aspect of the scenario.

SparklingLeaves Is One of the Major Suppliers of Automobile Tools