When asset specificity is very high and there is a lot of market uncertainty,then it is best for a firm to:
A)buy in the open market.
B)use a long-term contract.
C)vertically integrate.
D)engage in a joint venture.

Question

Quizplus · Accepted Answer

When asset specificity is high, it means that the firm has invested in specialized assets that have limited use outside of the current market, which can create a high level of dependency on a specific supplier or customer. In this scenario, market uncertainty can lead to an unpredictable environment, making it difficult to rely on external suppliers or partners. Therefore, the best choice for the firm is to vertically integrate by owning the entire supply chain, which will allow for greater control over the production process and reduce the risk of disruption to the business.

When Asset Specificity Is Very High and There Is a Lot