Managing Vertical Relationships
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Managing Vertical Relationships Identify a vertical relationship in your company and determine whether it could be managed more profitably by tying, bundling, exclusion, or vertical integration. Clearly identify the source of the profitability (e.g., regulatory evasion, elimination of double markup, better goal alignment, or price discrimination), and describe how to exploit it. Estimate the change in profit. |
Explanation
There exists a vertical supply chain which often results in unrealized profit which can be captured by firms in the form of a variety of contractual or organizational forms such as tying, bundling, exclusion and vertical integration. This is the case when there has been limit put up for transaction. There are other options like untying and unbundling.
This vertical relationship helps realize or capture the unrealized profit by tying regulated goads with unregulated ones. When the company was suffering a loss it could identify that it could release a part of the firm for rent, but it also charged an extra rent for the furnishing which was a part of the unrealized profit The company could capture it by tying the rent of furniture with that of the building, thereby clearly evading the regulators.
Answer
The answer is as explained below;
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