Asymmetric information problems arise:
A) in horizontally integrated firms, but not vertically integrated firms.
B) in vertically integrated firms, but not horizontally integrated firms.
C) in both vertically and horizontally integrated firms.
D) only in firms that do not have the advantage of either horizontal or vertical integration.
E) only when a single firm is both horizontally and vertically integrated.

Question

Quizplus · Accepted Answer

Asymmetric information problems can arise in both vertically and horizontally integrated firms. In vertically integrated firms, there may be information asymmetry between the different levels of the supply chain, leading to problems such as moral hazard and adverse selection. In horizontally integrated firms, there may be information asymmetry between different divisions or business units, as well as between the firm and its customers or suppliers. Therefore, choice C is the best answer.

Asymmetric Information Problems Arise