Introduction
In the pursuit of expansion, TVSpot has recently contacted Top-Jingles, a firm that specializes in sound effects and music. They believe is that the competencies of the two firms go well together, and that cooperating with Top-Jingles will improve the firm. TVSpot is trying to draft a contract that secures a fair and good business relationship that is profitable for both parties. The contract must account for the contribution and risk that both parties have made, at the same time as it covers the relevant contingencies that can arise. What elements should the contract contain to fulfil the wishes of TVSpot?
Self-enforcing contract
A good contract is necessary to make business relationships work, and is important in order to reduce the transaction costs for the company. Unlike the Coase theorem and the fundamental welfare theorem, transaction cost economics have relaxed assumptions. TCE does not require the assumption of complete rationality, and is directed more at real-life situations. In real-life situations, with bounded rationality, it is almost impossible to make complete contracts. The reason for the incomplete contracts is the high costs of writing complex contracts, not being able to foresee all possible future events and opportunism. An incomplete contract can also be a result of the unverifiable elements of …show more content…
Should TVSpot accept customers before discussing it with Top-Jingles, or should both parties be involved when deciding projects. No laws or rules requires Top-Jingles to work on TVSpot’s commercials, so in projects where TVSpot envisions using Top-Jingles, it could be clever to have a consultation before accepting the project. If Top-Jingles do not want to work on the project, or does not feel they have the competencies to create the required content, then TVSpot has to decide whether they still want to accept the project, and use another firm for the sound
In the pursuit of expansion, TVSpot has recently contacted Top-Jingles, a firm that specializes in sound effects and music. They believe is that the competencies of the two firms go well together, and that cooperating with Top-Jingles will improve the firm. TVSpot is trying to draft a contract that secures a fair and good business relationship that is profitable for both parties. The contract must account for the contribution and risk that both parties have made, at the same time as it covers the relevant contingencies that can arise. What elements should the contract contain to fulfil the wishes of TVSpot?
Self-enforcing contract
A good contract is necessary to make business relationships work, and is important in order to reduce the transaction costs for the company. Unlike the Coase theorem and the fundamental welfare theorem, transaction cost economics have relaxed assumptions. TCE does not require the assumption of complete rationality, and is directed more at real-life situations. In real-life situations, with bounded rationality, it is almost impossible to make complete contracts. The reason for the incomplete contracts is the high costs of writing complex contracts, not being able to foresee all possible future events and opportunism. An incomplete contract can also be a result of the unverifiable elements of …show more content…
Should TVSpot accept customers before discussing it with Top-Jingles, or should both parties be involved when deciding projects. No laws or rules requires Top-Jingles to work on TVSpot’s commercials, so in projects where TVSpot envisions using Top-Jingles, it could be clever to have a consultation before accepting the project. If Top-Jingles do not want to work on the project, or does not feel they have the competencies to create the required content, then TVSpot has to decide whether they still want to accept the project, and use another firm for the sound