What is the level of transaction-specific investment

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What is the level of transaction-specific investment for each firm in the following transactions? Who in these transactions is at greater risk of being taken unfair advantage of. (a) Firm I has built a plant right next door to Firm II. Firm I’s plant is worth $5 million if it supplies Firm II. It is worth $200,000 if it does not supply Firm II. Firm II has three alternative suppliers. If it receives supplies from Firm I, it is worth $10 million. If it does not receive supplies from Firm I, it is worth $9.8 million. (b) Firm A has just purchased a new computer system that is only available from Firm B. Firm A has redesigned its entire production process around this new computer system. The old production process is worth $1 million, the new process is worth $12 million. Firm B has several hundred customers for its new computer system. ?(c) Firm Alpha, a fast-food restaurant company, has a contract with Firm Beta, a movie studio. After negotiating with several other potential partners, Firm Alpha agreed to a contract that requires Firm Alpha to pay Firm Beta $5 million per year for the right to use characters from Firm Beta’s movies in its packaged meals for children. Demand for children’s movies has recently dropped. ?(d) Firm I owns and runs a printing press. Firm J uses the services of a printing press. Historically, Firm I has sold its services to many customers. However, it was recently approached by Firm J to become its exclusive supplier of printing-press services. Currently, Firm I is worth $1 million. If it became the sole supplier to Firm J, it would be worth $8 million. To complete this deal, Firm I would have to stop supplying its current customers and modify its machines to meet Firm J’s needs. No other firm needs the same services as Firm J. Firm J contacted several other suppliers who said they would be willing to become a sole supplier for Firm J before deciding to propose this arrangement with Firm I.

Reference no: EM132083706

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