Chapter 3 Questions

What is a market firm?

An independent outsourcing partner

Which of the following processes is most representative of a less integrated firm on the "buy" end of the make-or-buy continuum?

Arm's length market transactions

What problem preventing complete contracts refers to a lack of transparency/equal access to the details surrounding a contract?

Asymmetric information

What problem preventing complete contracts refers to the limits on the capacity of individuals to process information, deal with complexity and pursue rational aims?

Bounded rationality

Which of the following is not a method to protect intellectual property?

Charging higher prices to limit access to IP

When contracts are incomplete, what must be well defined and enforceable to allow for smooth transactions to occur?

Contract law

Which of the following has a downstream relationship with a Toyota Motor Corporation?

Dealerships

Which of the following is a method firms can use to counteract price fluctuations and eliminate income risk?

Enter into futures contracts to hedge the price of raw materials

Which of the following issues makes it difficult for to managers to reign in dedicated "cost centers" in a firm?

Firms are unwilling to endure the ill will generated by firing unproductive elements in an organization

Which of the following is a true argument regarding the make-or-buy decision process?

Firms should buy, rather than make, in general, because market firms are subject to the discipline of the market and must be efficient and innovative to survive

What primary agency cost problem plagued the partnership between Sony's hardware and software from 1998-2008 with regards to digital music?

Manager/worker slacking

Which of the following processes is most representative of a vertically integrated firm on the "make" end of the make-or-buy continuum?

Perform activity internally

The biotechnology industry is seeing a broad pattern of disintegration due to the fact that big pharma companies are less and less doing which of the following core functions?

Product innovation

Which of the following is not a result of the holdup problem?

Reduction in the transaction costs of arm's length market exchanges

Which of the following types of fit (used to aide in coordination along all dimensions of production) explains a situation where the steps of a particular process must occur in a particular order?

Sequence fit

What do the vertical boundaries of a firm refer to?

The activities the firm itself performs versus purchases from independent firms

Which of the following is not a characteristic of a complete contract?

The contract allows for a party to exploit weaknesses in another party's position as the transaction unfolds

Which of the following is a reason for a firm to Buy rather than make?

Upstream firms aggregate the demands of many buyers and provide economies of scale.

Under what circumstance would it be logical to leave contracts vague and open-ended?

When performance may be ambiguous or difficult to measure.