If All of the Divisions in a Vertically Integrated Firm

question 32

Multiple Choice

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.

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Governmental incentives that reduce the tax liability of individuals or businesses, encouraging certain economic activities or investments.

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