Question 2

a) Yes there is indeed a holdup problem when considering the nature of the
relationship between Tetris and Mango. This is a fact since Tetris must spend
money to modify equipment for the specific deal with Mango. The issue
created is that as there is a relationship specific investment to be made by
Tetris and their alternative is not nearly as attractive as fulfilling the current
one with Mango. Thus Mango may hold Tetris up by renegotiating the deal
after Tetris has committed to purchasing the machine needed for the
relationship.

b) RSI: the amount of your investment that you cannot recover if you do not do
the original deal
RSI = Investment in modification alternative earnings
RSI = $ 10 million $9.8 million
RSI = $200K
c) Rent: Profit Realized by doing the deal
Tetris Rent if Mango keeps same price = Earnings form deal (same price)
Investment in modification
Tetris rent if Mango keeps same price = $15 million - $10 million
Tetris rent if Mango keeps same price = $5 Million
Mango Rent = 0 (mango is the buyer thus there is no rent)
d) Quasi Rent: Difference between profit you get from doing the deal and not
doing the deal at all
Tetris Quasi-Rent
Profit by taking original deal: $5M
Profit by not taking deal: $-.2M
Quasi Rent = $5M ($-.2M)
Quasi Rent = $5.2M
Mango Quasi Rent
Profit form taking original deal: $0M
Profit from not taking deal: $-5M
Quasi Rent: $0M ($-5M) = $5M

e) To prevent the sale of any aluminum casings to pineapple, mango must

simply make an offer that is JUST BARELY better than the one offered by
Pineapple. Therefore all Mango must do is offer $9.81 million for the deal as
this is just marginally better than Pineapples deal so Tetris would still take it.
f) FIND OUT FROM OTHER GROUP.