A Movie Producer Is Negotiating with an Up-Coming Director to Direct

question 26

Essay

A movie producer is negotiating with an up-coming director to direct its next summer action film. The director's latest movie has been well-received and there is talk that he might be nominated for an academy award. The producer believes the director is currently worth a $500,000 fee but would be worth a $2 million fee if he is nominated for an Oscar (these are the producer's reservation prices). For his part, the director's current walk-away price is $300,000 but it would rise to $1.5 million with an Oscar nomination. The producer thinks the chance of a nomination is 0.3; the director thinks it is 0.6.
(a) Can the parties agree on a flat dollar fee? If so, what is the zone of agreement?
(b) Is negotiating a contingent fee a better option for the parties? Explain.

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Definitions:

Inferiority Complex

A psychological condition where an individual feels a deep sense of inadequacy and lack of worth compared to others, often leading to overcompensation or withdrawal.

Narcissistic Tendencies

Traits or behaviors characterized by an excessive preoccupation with oneself and a lack of empathy for others.

Superego

In Freudian psychoanalysis, the part of the personality that represents internalized societal norms and morals, and is responsible for feelings of guilt and the striving for perfection.

Neo-Freudians

Psychologists who were influenced by Freud's theories but developed their own theories that differed in significant ways, often emphasizing social and cultural factors.