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:

Structuralism

An early school of psychology that used introspection to explore the elemental structure of the human mind.

Functionalism

A framework in psychology that emphasizes the purpose of mind and behavior in adapting to the environment.

Introspection

The examination or observation of one's own mental and emotional processes.

Full Potential

Describes the highest level of performance or development that an individual, group, or object can achieve with its innate and developed capabilities.