Company a Has Made Substantial Investments in Specialized Assets And

Multiple Choice

Company A has made substantial investments in specialized assets and, in theory, because of this investment, has become dependent on Company B. Company B can threaten to change orders to other suppliers as a way of driving down Company A's prices. Company B is highly unlikely to change suppliers because it is, in turn, a major supplier to Company A and also has made major investments in specialized assets to serve their needs. These companies are mutually dependent because of the specialized investment the other has made. Thus, Company B is unlikely to renege on any pricing agreements with because it knows that Company A would respond the same way. This is an example of which of the following?

A) Hostage taking
B) Credible commitment
C) Parallel sourcing policy
D) Market discipline