If all of the divisions in a vertically integrated firm are owned by the same company, why is it possible that asymmetric information problems can lead to inefficient outcomes in vertically integrated firms?
A) Divisions that produce parts for other divisions have effective monopoly power, so the outcome for these division must be inefficient.
B) This outcome is no longer possible in the U.S. after passage of the Sarbanes-Oxley law.
C) Vertically integrated firms are often subject to antitrust investigations, so managers routinely limit the amount of information that flows between divisions.
D) Managers in some divisions may not have information about production capacities or costs in related divisions.
Question 2
Refer to Figure 10.1. Suppose that the government decides to limit monopoly power with price regulation. If the government sets the price at the competitive level, it will set the price at ________.
A) P1
B) P2
C) P3
D) P4
E) none of the above
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