Key features Spot exchange a Specialization, avoids contracting costs, avoids costs of vertical integration Possible hold-up problem Contracting Specialization, reduces opportunism, avoids skimping on specialized investments a Costly in complex environments Vertical Integration Reduces opportunism, avoids contracting costs ost specialization, organizational costs Michael R Baye, Managerial Economics and Business Strategy, 3e. CThe McGraw-Hill Companies, Inc, 1999Michael R. Baye, Managerial Economics and Business Strategy, 3e. ©The McGraw-Hill Companies, Inc. , 1999 Key Features • Spot Exchange  Specialization, avoids contracting costs, avoids costs of vertical integration.  Possible “hold-up problem” • Contracting  Specialization, reduces opportunism, avoids skimping on specialized investments  Costly in complex environments • Vertical Integration  Reduces opportunism, avoids contracting costs  Lost specialization, organizational costs