R&R Case



R&R Case

Bob Reiss was an entrepreneur. He saw an opportunity in the market to make a profit and he succeeded. The following describes his market transactions and whether they were right or wrong using transaction cost economics theories. I will use Oliver Williamson's theories and rules to decide whether the transactions were correct. At the end I will have enough information to decide if every opportunity needs a firm and if there is room for entrepreneurs who depend on the price mechanism.

Reiss's first major market transaction was designing the game. He took this to the market and found a professional inventor, whom he knew. This was the right decision. This game only needed to be designed once. The frequency was low. Therefore there was no point in wasting time and incurring the costs of creating it. Also this product was unique. He would not have been able to create it as simply as the market, which had more experience. Since Reiss knew the designer the uncertainty of him defaulting on the contract was very low. He also knew that the designer would be motivated to complete the project because he aligned their interests together through a sales motivated contract.

Next was Reiss's responsibility to set up operations to take the game to market. He didn't have the cash flow to do this. Instead of raising the money himself he established a partnership to create the firm Trivia Inc and went to the market to gain the funding. His new partner Kaplan gave him a line of credit, handled day-to-day details, supervised product manufacturing and produced all ads. I believe this to be the right decision. He again aligned the interests of his business partner with his own, by offering half the equity of the firm. This would motivate Kaplan considering they both have the same goals now. Reiss knew that finding money for this venture needed to happen only once. The frequency was low so he went to the market.

Along with the money Kaplan brought other assets to the table like securing press time and paper supplies on short notice. Reiss realized it was a good decision to let the market (Kaplan) take over certain functions for a price. Considering the workload Kaplan has received; I believe the economic exchange cost to be quite low in gaining him as a partner.

Reiss again went to the market ...