Question

Suppose your firm has a greater need for specialized machinery in order to produce custom- made motorcycle helmets. Your firm already has a contractual relationship with the fiberglass supplier; however, that contract is now up for renegotiation. Illustrate and explain this scenario using the market for contracts.

Answer 1

The Market for contracts is a specialized agreement which establishes a standardized negotiation between two parties, whereby the two parties agree to exchange commodities at a rate which is currently fixed at a defined time. However, the terms and conditions including the rates fixed can be brought under negotiation at a later stage, if the parties deem it necessary. Now, in the case of the motor cycle helmets here, we already had an agreement with the fiberglass supplier, but we now need a greater number of machineries for the production of motor cycles of custom make. Moreover, the contract is already up for renegotiation. Therefore, we must make full use of this opportunity to push for the higher quantity of the machineries when the contract will be re-negotiated. In any way, during the re-negotiation, the price of the commodities and the quantities of the products ioncreased.