relationship-specific+exchange

Jason Strachman

This information was acquired from //Managerial Economics and Business Strategy// by Michael R. Baye on pages 209.


 * Relationship-specific exchanges** are types of exchanges that occur when the parties to a transaction have made specialized investments. The important point is that that the two parties are tied together because of the specific investments made to facilitate the exchange between them. This concept often creates transaction costs due to the sunk nature of the specific investments.

For example, if two companies move their plants close to each other so lessen the transportation costs of materials to each other, the two companies have engaged in a relationship-specific exchange.

Another example, if a company purchases specialized equipment that only serves the needs of another company, the two companies have engaged in a relationship-specific exchange.

__Queston 1:__ True or False -- a relationship-specific exchange occurs when two companies make specialized investments in order to do business with each other.


 * Answer is True**