Vertical coordination can facilitate stronger customer-seller ties but at the same time may increase the risk to the customer's and supplier's specific investments. What are specific investments and why are they risky?
Answer: Specific investments are those expenditures tailored to a particular company and value chain partner. These might include investments in company-specific training, equipment, and operating procedures or systems. Because these investments are partially sunk, they lock the firm that makes them into a particular relationship. A buyer may be vulnerable to holdup because of switching costs; a supplier may be more vulnerable to holdup in future contracts because of dedicated assets and/or expropriation of technology/knowledge.