Why are ‘bounded rationality’, ‘externality’, ‘opportunism’, and ‘asset

| June 19, 2015

Why are ‘bounded rationality’, ‘externality’, ‘opportunism’, and ‘asset specificity’ concepts relevant for the relationship a marketer has with their suppliers
Paper instructions:
This question requires candidates to demonstrate some empathy with the context that has been provided. Candidates should focus their discussion on the relationships that marketers have with their suppliers. In summary, firms should be aware that where their purchases involve asset-specific investments in products being sold by their suppliers, this may place their suppliers in a relatively powerful position (since demand may be relatively price inelastic), which could subsequently be exploited in terms of higher prices, for example. Marketers should also be aware that bounded rationality on their part could also open them up to opportunistic behaviour on the part of suppliers, and externalities may also arise in such instances.

Answers could also explain that dealings with suppliers are important for marketers, because they can influence the value that firms offer to their customers. Credit would be given to candidates who made a point such as this one, as long as it was succinct and the discussion of the concept of value did not dominate the answer.

Candidates would be given additional credit where they explained why, for certain purchases, most of these concepts would not be relevant. Such purchases would be low risk, straight re-buy type purchases where bounded rationality, opportunism, etc. would play a very limited role.


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