A buyer or seller must consider a number of risks when evaluating whether a long-term contract is necessary or even desirable. Three primary questions must be asked when developing a long-term contract and considering the risks: What is the potential for opportunism? In other words, how likely is the supplier totake advantage of the purchaser (or vice versa)?Is this the right supplier to engage in a long-term contract?C.Is there a fair distribution of risk and gains between the parties involved?

Risks: It is the chance of something terrible occurring. Hazard implies vulnerability about the…

Answered: A buyer or seller must consider a…

Managerial Economics: A Problem Solving Approach

5th Edition

ISBN:9781337106665

Author:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor

Publisher:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor

Chapter16: Bargaining

Section: Chapter Questions

Problem 16.1IP

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A buyer or seller must consider a number of risks when evaluating whether a long-term contract is necessary or even desirable. Three primary questions must be asked when developing a long-term contract and considering the risks:

What is the potential for opportunism? In other words, how likely is the supplier to

take advantage of the purchaser (or vice versa)?

Is this the right supplier to engage in a long-term contract?

C.Is there a fair distribution of risk and gains between the parties involved?

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