The presence of substantial specialized investment relative to contracting costs suggests that the optimal input procurement method is:
A) spot exchange.
B) vertical integration.
C) contract.
D) vertical integration or contract.

Question

Quizplus · Accepted Answer

The presence of substantial specialized investment relative to contracting costs implies that there are significant transaction costs associated with using the market to procure inputs, making vertical integration or contract the preferred options. The choice between the two will depend on specific circumstances, such as the degree of asset specificity and the availability of specialized suppliers.

The Presence of Substantial Specialized Investment Relative to Contracting Costs