Brainscape's Knowledge GenomeTM

Browse over 1 million classes created by top students, professors, publishers, and experts.


See full index

ICAS > Chapter 3 > Flashcards

Chapter 3 Flashcards

1
Q

What is the vertical chain?

A

The process that begins with the acquisition of raw materials and ends with the distribution and sale of finished goods and services

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

What are the vertical boundaries of a firm

A

Define the activities that the firm itself performs as opposed to purchases from independent firms in the market.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

What is the make-or-buy decision

A

A firm’s decision to perform an activity itself or to purchase it from an independent firm

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

What is upstream

A

early steps in the vertical chain

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

What is downstream

A

later steps in the vertical chain

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

What is the make-or-buy continuum

A
  1. Arm’s-lengths market transactions
  2. long-time contracts
  3. Strategic alliances and joint ventures
  4. Parent relationships
  5. perform activity internal
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

What are the benefits of using the market

A
  1. Achieving economies of scale
  2. Make use of the efficiency and innovations of the market
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

What are the costs of using the market

A
  1. Lack of coordination
  2. Private information may be leaked
  3. Transaction costs
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

Forms of vertical foreclosure (integration to tie op the channel)

A
  1. A downstream monopolist acquires a competitive upstream firm and refuses to purchase from other upstream suppliers.
  2. An upstream monopolist acquires a competitive downstream firm and refuses to supply other downstream firms.
  3. A competitive downstream firm acquires an upstream monopolist and refuses to supply its downstream competitors.
  4. A competitive upstream firm acquires a downstream monopolist and refuses to purchase from its upstream competitors.
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

Reasons to buy

A
  1. Exploiting scale and learning economies
  2. Bureaucracy effects: avoiding agency and influence costs
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

What are agency costs?

A

Costs associated with shirking and the administrative controls to reduce it

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

What is shirking

A

Managers and workers who knowingly do not act in the best interests of their firm

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

What are influence costs

A

Costs that arise when transactions are organized internally

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

Factors that prevent complete contracting

A
  1. bounded rationality
  2. Difficulties specifying or measuring performance
  3. Asymmetric information
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

What aspects to include in the Coordination of Production Flows through the Vertical Chain

A
  1. Timing Fit
  2. Sequence Fit
  3. Technical Specification
  4. Color Fit
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q

What is a relationship-specific investment?

A

Relationship-specific investments are investments made to make a transaction with a partner firm more efficient. They create value but are at the same time only useful for that specific transaction (relationship specific)

17
Q

What are Forms of Asset Specificity

A
  1. Site specificity
  2. Physical asset specificity
  3. Dedicated assets
  4. Human asset specificity
18
Q

What is Rent

A

The profit you expect to get when you build the plant, assuming all goes as planned.

19
Q

What is Quasi- Rent

A

Is the extra profit that you get if the deal goes ahead as planned versus the profit you would get if you had to turn to your next-best alternative

20
Q

What is the holdup problem

A

Its trading partner by attempting to renegotiate the terms of a deal
Generates quasi-rent for trading partners
Can occur when incomplete contracting

21
Q

Consequences of the holdup problem

A
  1. More difficult contract negotiations and more frequent renegotiations
  2. Investments to improve ex-post bargaining positions
  3. Distrust
  4. Reduced ex-ante investment in relationship-specific investments and/or reduced ex-post cooperation.
22
Q

What are the reasons to make?

A
  1. Incomplete contracting
  2. Coordination of production flow through the vertical chain
  3. To avoid leakage of private information
  4. Avoid paying transaction costs
  5. relationship-specific assets causing them not to switch partners
  6. To avoid rents and quasi-rents
  7. To avoid the holdup problem
23
Q

What is the role op relationship-specific assets in a transaction?

A

RSA is an asset that supports a transaction

24
Q

What is the RSI?

A

It is the amount of the investment that can not be recovered if the company does not do business with the first choice (Ford)

Relationship-specific investment (RSI)
Investment - Q(P-C)
8.5 - 1 ( 4 - 3 ) = 7.5 (you loose 7.5 million)

ICAS (11 decks)

Brainscape helps you reach your goals faster, through stronger study habits.
© 2024 Bold Learning Solutions. Terms and Conditions