Transaction-specific investments make parties to an exchange vulnerable to opportunism, and vertical integration solves this vulnerability problem.

Question

Quizplus · Accepted Answer

Transaction-specific investments refer to investments made by a party in order to create value for a specific transaction. These investments can be costly and create a dependency on the other party, making the investing party vulnerable to opportunism. Vertical integration, which involves owning and operating all stages of production or distribution, can reduce this vulnerability by eliminating the need for transaction-specific investments and allowing for greater control over the production process. Therefore, the statement is true.

Transaction-Specific Investments Make Parties to an Exchange Vulnerable to Opportunism