Question

While theoretically the costs of R&D are captured in the product's shelf price e.g. the sticker price of the SUV on the car lot; how are monitoring and enforcement costs recouped in the context of market transactions?

Answer 1

The costs of monitoring is nothing but to decide if the agreed terms of trade are complied with while the cost of enforcing includes stipulated terms through legal, social or other means. The price of the product is indeed inclusive of all the costs that are incurred to the manufacturer and at times, through certain schemes like insurance from their own subsidiaries etc, they can get to cover up the costs quite easily and in this way, the costs are actually recovered.