when transactions involve a high degree of asset- specificity (where the value of an investment made...

when transactions involve a high degree of asset- specificity (where the value of an investment made to support a specific transaction is much less in its next best application) the seller may be locked- in by virtue of her investment. which statements are accurate

a.the seller vulnerability is usually offset to a large extent by the that of the buyer who cannot turn readily to substitute suppliers

b. both buyer and seller will typically work hard to make the exchanges and relationship persist

both a and b

Solutions

Expert Solution

Both options are correct (a and b)

Under this situation of asset specificity, both buyers and sellers have to work out because they are operating in a bilateral exchange where the sellers on one side are locked- in by virtue of their investment, switching cost will prevent buyers from changing suppliers and this reduces the exposure of sellers at the cost of buyers.

Rahul Sunny answered 1 year ago

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