§ For the non-commodity part of raw materials (freshness, quality), easy to specify in contracts § Bird’s Eye finances, but doesn’t own harvesting machines
Bird’s Eye (2/2) • Freezing plants co-located with farms, docks. − New technology + hold up problem! − No new technology for cold storage facilities and distribution, but asset specificity of these investments (i.e., location for cold storage, scheduling for distribution) generates a similar hold up problem • Initially, logistics are a competitive advantage for BE − Once you are at scale distributing peas and beefburgers, why not throw in some liver pies? • Eventually, new technology (blast freezers) and new buyers (supermarkets) make vertical integration a disadvantage for BE
Disney and Pixar (1/3) • Key changes between first and second contract − 5 movies vs. 3 − Pixar gets a bigger slice of revenue, pays share of costs − Pixar got more creative and distributive control, but Disney had final say on many economically relevant matters − Disney still kept the theme parks • Why did the contracts change? − Pixar gained bargaining power by proving its creative and technical prowess. Toy Story was among the most successful animated films in the last 5 years − Disney lost bargaining power in departure of Jeff Katzenberg, increase in animator salaries, and internal CG failures
Disney and Pixar (2/3) • Key disagreement point: sequels − Sequels generate more and less risky profits for both parties § Not a source of disagreement! − However, only Disney earns theme park profits from sequels − Resources spent on a sequel take away from Pixar’s ability to create new material, lowering its future bargaining power • Disney and Pixar probably make sense together. − Ex 1 and 3 show that their combined forces are much more profitable than the competition. Also, theme parks! − Hard to know for sure whether Pixar could be equally or more profitable contracting with Dreamworks or another distributor
Disney and Pixar (3/3) • Should Disney own Pixar? − Need to rule out other options! § Can they just write another contract? Yes, but it would be even more complicated than the second contract, and would (probably) tilt the scale even further in Pixar’s favor § Can Disney just hire away Pixar talent? Maybe, but Pixar employees are famously loyal and Disney has a history of hiring and laying off animators when conditions change. − Need to be sure that acquisition retains the combined value § Will Pixar employees leave under Disney culture? § Will Disney creative control stifle the Pixar process?
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- Spring '17
- Management, Coal, treatment plants, Control plants, Vertical Integration