In early 1997, Cephalon, awaited an FDA panel's decision on whether its drug, Myotrophin, would be approved. If the drug was approved, the firm might need substantial additional funds to commercialize as well as to buy back rights to it (which had been sold earlier to finance its development). The firm's CFO is considering a variety of financing strategies, including buying call options on the firm's own stock and paying for those options by issuing shares at the current time.
Designed to illustrate the complexity of buyer-seller arrangements in an established industry. When movie studios negotiate with theater operators to show new films, the costs to the studios of making the films are largely sunk. Similarly, the costs to the theaters of showing films are also sunk. Thus, both parties to the exchange have high bargaining power and are vulnerable to hold-up. Allows students to identify the implications for industry structure. In particular, the case highlights the recent trend toward multiplexes and small screen sizes.
Describes the history of the competition policy in the European Union, and focuses on the evolution of pan-European and member-state statutes. The tension between policy and enforcement at various levels draws attention to issues of market definition, especially in merger policy.