Dell and most other computer makers do not make their own batteries. Many of them, including Dell and Apple source their batteries from Sony. In August of 2006, Dell and Apple were forced to issue a battery recall affecting 5.9 million laptops shipped by both Dell and Apple. Sony said it is fully supporting the effort, which will cost Sony between $171 million and $250 million. According to Sony: "The recall arises because, on rare occasions, microscopic metal particles in the recalled battery cells may come into contact with other parts of the battery cell, leading to a short circuit within the cell. Typically, a battery pack will simply power off when a cell short circuit occurs. However, under certain rare conditions, an internal short circuit may lead to cell overheating and potentially flames," Sony explained. The company says it has added new safeguards in the manufacturing process to eliminate this problem in the future (although similar problems occurred in 2000).

a. Using transaction cost theory, analyze whether the original decision to outsource batteries made sense (do not use hindsight).

b. If you were Apple or Dell, would you have changed your outsourcing strategy after the recall?