Froeb discusses post-investment holdup as a sunk cost problem associated with contract-specific fixed investments. The modern theory of contracts is that parties willingly join together to complete a mutual endeavor, but not all challenges can be anticipated. The idea is that parties will accommodate each other to further their mutual interests, provided the invested activity is profitable. Froeb uses marriage as an example of a contract subject to unforeseen challenges.

1. Context
In Chapter 5 of
Managerial Economics
, Froeb discussed post-investment holdup as a sunk cost
problem associated with contract-specific fixed investments.
The modern theory of contracts is sometimes called the theory
of joining wills, which simply means when parties make an
agreement they are joining together to complete an endeavor of
mutual interest. The problem with all contracts that endure over
time is that not all potential challenges can be anticipated. The
idea of joining wills is that parties will attempt to seek
accommodations to advance their mutual interest, so long as the
return on the invested activity pays off. Froeb illustrates the
idea by the example of marriage as a contract (1).
Sources
Luke M. Froeb. 2018.
Managerial Economics: A Problem Solving Approach
(5th ed.). p. 59. Cengage.
Instructions
Review the three scenarios below. Look for which, if any, of
these scenarios presents an example of post-investment holdup.
Your firm conducted a search for a new chief financial officer
and hired a highly qualified candidate with a yearly salary of
$250,000. After six months, the person left to join another firm.
Your firm has an exclusive contract to assemble automobile

2. seats for a number of luxury models. Almost 100% of the
materials are imported and, of those, over 50% include parts
manufactured in China. All of the prices on the parts from
China increased by 25% when the U.S. imposed tariffs on
China. Your company has informed all of its customers that
increased cost must be passed on for your firm to continue
supplying the seats. All of your customers reluctantly agreed to
pay the additional cost.
Your company took note of your progress toward your MBA,
and when the director for customer services left the company,
you were asked to take over as interim director. You were
encouraged to apply for the full-time position once you got your
MBA. You served for 13 months, at which time your company
was acquired by another company and your position was
abolished.
In your discussion post, address the following:
Introduce yourself to your peers by sharing something unique
about your background. Explain how you expect this course will
help you move forward in your current or future career.
Which of the above, if any, are an example of post-investment
holdup?
Define the following and explain each within the context of a
chosen scenario:
What is the sunk, or stranded, cost?
What is the contract?

3. Was the contract breached?
What are the damages?
Note:
In your discussion posts for this course, do not rely on
Wikipedia, Investopedia, or any similar website as a reference
or supporting source.
To earn full credit for your discussion, you must complete one
post and one follow-up or reply to a classmate. Make sure both
the post and the reply focus on the questions asked.