Grace Choi was considering her situation. She had been asked to provide marketing service to Maxim Pharmaceuticals, which wanted to introduce a new product line in Eastern Europe. Grace$$s company, Marketing Specialists Ltd$.,$ had provided such service for a variety of consumer companies since its inception in $1989$ and was known for its high$-$quality and successful marketing plans.

Maxim$$s new products were a line of over$-$

the$-$counter consumer drugs aimed at relieving cold and allergy symptoms. The formulation was fully approved by the appropriate agencies of the target countries, and a suitable marketing plan $($including development of a brand name appropriate for the product and the target countries$)$ had been developed and approved by Maxim.

Although detailed studies had been done, the cost of the marketing project was uncertain. The best guess seemed to be $4,000,000,$ but the study team thought the cost could be as low as $3,700,000$ or as high as$4,600,000.$ Grace had asked them to give her probabilities, and they had finally settled on the following probabiAll that remained was to consider how Marketing Specialists would be paid for its services. Maxim had indicated that it would be willing to consider two possibilities: $(1)$ cost plus $20\%$ of the cost, or $(2)$ a commission on sales over the next $5$ years at an agreed$-$upon rate. The first option would pay $120\%$ of the cost in three equal installments, after $6,12,$ and $18$ months. The commission is set at $15\%$ and would be paid at the end of each year, based on that year$$s sales. An additional provision of the commission arrangement was that the total commission could not exceed $7,000,000.$

In discussing the issue with other principals at Marketing Specialists, Grace had found considerable support for the commission arrangement on the grounds that, if the marketing plan was successful, the company would be rewarded for its high$-$quality work. On the other hand, it had been pointed out that the first option avoided the down side; if the product $$bombed$($low sales$),$ Marketing Specialists would still have earned back at least its cost.