3. By virtue of a contract, since 2014 Pfizer has held exclusive rights - in the U.S., Europe and the rest of the world - to distribute AstraZeneca's over-the-counter NEXIUM (esomeprazole magnesium), a leading prescription drug currently approved to treat the symptoms of gastro-esophageal reflux disease (GERD). Suppose Pfizer's monopsony and monopoly power from this exclusive deal for NEXIUM is earning unexpectedly huge profits. Is this sufficient justification for AstraZeneca to buy out Pfizer? Explain. (1 point)

4. In each of the following situations, why are firms likely to benefit from vertical integration? (1 point each)

a. A grain elevatoris located at the terminus of a rail line.

b. A manufacturer of a product with a national brand-name reputation uses distributors that arrange for advertising and promotional activities in local markets.

c. A biotech firm develops a new product that will be produced, tested, and distributed by an established pharmaceutical company.

10. "IBM is investing $3 billion in a private-public partnership with New York State, GlobalFoundries, Samsung and equipment vendors," to create ultradense computer chips (John Markoff, New York Times, July 9, 2015).

TOTALLY MADE-UP SCENARIO: Suppose that during their affiliation, Samsung has paid IBM $200 million for creating a special version of these ultradense chips for Android products. Suppose further that the contract included certain requirements for size, speed and other qualities. Then suppose that after beta testing these chips, Samsung claimed that IBM's efforts failed to live up to their contractual agreements. (2 points each: 1 for explaining the concept, and 1 for applying it correctly)

a. Was either party earning rent? What assumptions do you have to make to assert this?

b. Was either party earning quasi-rent? What assumptions do you have to make to assert this?

c. Could IBM have held up Samsung? And/or could Samsung have held up IBM? Explain.