Vertical coordination can facilitate stronger customer-seller ties but at the same time may increase the risk to the customer's and supplier's specific investments. What are specific investments and why are they risky?
What will be an ideal response?
Specific investments are those expenditures tailored to a particular company and value chain partner. These might include investments in company-specific training, equipment, and operating procedures or systems. Because these investments are partially sunk, they lock the firm that makes them into a particular relationship. A buyer may be vulnerable to holdup because of switching costs; a supplier may be more vulnerable to holdup in future contracts because of dedicated assets and/or expropriation of technology/knowledge.
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