3. Matilda Bottlers bottles and distributes wines and spirits in Australia. Big Gator is a conglomerate that manufactures, among other things, a popular lager beer. By virtue of a life time contract, Matilda has exclusive rights to bottle and distribute Big Gator beer in New South Wales, the largest state in Australia. Matilda uses its monopsony power to pay a lower price of Big Gator beer than do bottlers in other states. Is this sufficient justification for Big Gator to buy out Matilda Bottlers? No, it does not have enough information for Big Gator to make a decision whether it should buy out (or vertically integrate with) Matilda Bottles. Big Gator should weight benefits and costs between make or buy that the company will gain more advantage from making this decision. Benefits and drawbacks from making a product by the company itself (integrates downstream If Big Gator integrates downstream with Matilda, it will gain an advantage in terms of a life time contract between both companies. Big Gator will have more power to negotiate a purchasing beer price. Moreover, Big Gator will have more chance to gain more profit due to monopsony power of Matilda in the largest state in Australia. Also, Big Gator can reduce its operating fixed cost resulting from economies of scale. However, it has some drawbacks from this integration such as lacking of innovativeness of in-house department from designing a new style of bottles or finding other ways for effective distribution. Benefits and drawback from buying a product from market firms Big Gator will gain a benefit from reducing the cost from Matilda's specialized and obtaining and advantage from economies of scale and learning economies. Also, Big Gator will receive efficient and innovative products and service. Nevertheless, there are some drawbacks such as compromising in coordination of production flow, and leaking of private information. After determining an advantage and disadvantage of make-or-buy decision, Big Gator should consider about economies of scale before integration, also, the agency cost or influence cost. Then, Big Gator just finds out the optimal solution to maximize its profits and lead to the most efficient production