Question

A drawback of short-term contracting as an alternative to making a component in-house is that:_______.
a. it is the most-integrated alternative to performing an activity so the principal company has no control over the agent.
b. the buying firm cannot demand lower prices due to the lack of a competitive bidding process.
c. it fails to allow a long planning period that individual market transactions provide.
d. the supplying firm has no incentive to make any transaction-specific investments to increase performance or quality.

Answer 1

Answer:

D. the supplying firm has no incentive to make any transaction-specific investments to increase performance or quality.

Explanation:

A drawback of short-term contracting as an alternative to making a component in-house is that the supplying firm has no incentive to make any transaction-specific investments to increase performance or quality.