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Decide to Do Business Together

Exercises (questions: 1,2,4,8,and 11)

  • 1.  Suppose an enhanced effectiveness of cooperative advertising occurs if the distributor shares its superior on-the-spot information about current trends in the marketplace with the manufacturer. Explain how each of the following would affect the information-sharing objective:
    • a.  All details of co-op advertising are agreed to up front in the franchise contract.
    • b.  Advertising is pursued independently by the manufacturer and the retail distributor.
    • c.  Cooperative advertising allowances are rebated to the distributor out of the franchise fees.
  • 2.  If contract promises were not excused because of acts of war, would the clearing and settlements clients of Bank of New York change their behavior? If so, how? What reliance behavior would be considered efficient? What reliance behavior would be considered excessive?
  • 4.  How might the lender in Figure 15.2 use knowledge of the type of asset booked by the borrower on its balance sheet to offset the liability for the loan extension? Commercial loan covenants often include a restriction on precisely this balance-sheet decision making—for example, restricting the booking of offsetting foreign assets.
  • 8.  In benchmarking sales representatives against one another, what problems arise from continuing to reassign the above-average trade representatives to previously unproductive sales territories?
  • 11.  Analyze the pure Nash equilibrium and mixed Nash equilibrium strategies in the following manufacturer–distributor coordination game. How would you recommend restructuring the game to secure higher expected profit for the manufacturer?

Case Exercises in (world document )

Borders Books and Decide to Do Business Together

Borders Books, once the leading chain of bookshop retailers, entered into an agreement with, the online retailer, to fulfill Internet orders from the Web site. Using Table 15.3 and the following questions, what organizational form would you predict for this business relationship?

Table 15.3

Efficient Organizational Form Depends on Asset Characteristics

Not dependent on unique complements Spot market recontracting Long-term supply contracts + risk management
One-way dependent assets Relational contracts (alliances) Vertical integration
Bilateral dependent assets Relational contracts (joint ventures) Fixed profit-sharing contracts


  • 1.  Are’s warehouses, Web pages, and one-click sales methods fully redeployable to other products? If so, name a few such products. If not, why not?
  • 2.  Are Borders’ fixed assets fully redeployable? If so, suggest how. If not, why not?
  • 3.  Is Borders dependent on Amazon as a unique complement? That is, is the only potential company that could process Internet-based orders for Borders?
  • 4.  Is Amazon dependent on Borders for referrals, or does it have its own Internet-based order flow?
  • 5.  Is your answer consistent with the multiyear fee-for-service contract between Borders and whereby Amazon processes the order, ships the book, records the sales, and pays Borders a referral fee? One Borders executive described this as a “low-risk, low-return” approach to online sales while retaining Borders’s focus on its core mission of running bookshops. This approach acknowledged the attraction of on-line book purchasing for segments of the Broders target market but failed to recognize the e-book revolution still sweeping across book retailing. Borders has declared bankruptcy and been liquidated; business strategy is not secured by efficient contracting.

Part Two

This part is two pages

Bargaining is a tool to be considered strategically every day. Use this concept for this week’s DQ. Relate some experience where bargaining was useful and describe the circumstances and the outcome for both parties. 

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