seNDING MY STUDENTS TO University of Chicago Law school FOR A DAY

I have to travel to Albany today as Farmingdale State College's "Faculty Senator". It's a big honor and a very enjoyable aspect of my job. 

My "Game Theory for Business" students (ECO 372) will be "attending law school" for the day, as I will not be there to challenge them.

By "attending law school", I mean that they will be watching a lecture from the University of Chicago School of Law on the problem we have been studying for the past 2 weeks: supply chain holdup.

The video is embedded below, but can also be accessed at this link.

Many interesting examples come up in the video. We have been studying a particular example of an upstream firm holding up a downstream firm (e.g. the GM -vs- Fisher debacle of the 1920s).

What I like about this video is that it includes examples of an upstream firm, like a natural gas or oil supplier/refiner, being held up by a downstream firm, like whoever owns the pipelines to transport these resources.

The contract solution presented in those industries is the take-or-pay contract: the downstream firm has the obligation to pay the upstream in accordance with the terms of the contract, independent of whether they actually take delivery of the resource.

This commits the downstream firm to not hold up the upstream firm - it has to pay the agreed to amount whether or not it takes delivery. 

To let my students indulge in exploring this aspect of business, I developed the homework problem below, which is a part of my "OER" development of this course.