The essence of picking a contractor from a competitive pool involves a lot of information processing. The person or group tasked with making the decisions collects the information about the available choices: competing firms. The decision making group assesses every alternative based on the specified criteria that has been set. The alternatives are then compared with each other to determine which one compares best. From the comparison, a list is drawn to rank the competing firms, and the best is chosen (Brett, 2007). The outlined process is the same irrespective of the method of contracting that is used: contracting by negotiation, sealed bidding, or simplified acquisition.

The group or person that is involved with planning the competitive acquisition designs the process that will be involved in getting the information about the alternatives, conducting assessment of each alternative, and comparing alternatives in order to determine which is the most ideal. In coming up with the process, their objectives and goals must consider taking into account costs, quality and schedules. In addition, they must put into consideration the time, the technological and human resources that are available at their disposal and the attributes of good decisions. The ultimate goal of the whole process of contracting is to minimize the transaction costs involved by utilizing the best decision, in the reasonable time possible by making use of minimal organization’s resources. At the same time, the group involved in planning should strive to make reasonable demands on the competing firms so as not to make the process unattractive for the competing firms (Brett, 2007).

Question 2:

Why warranty service represents an increased cost to the seller (and a potential increase in price to the buyer) and why the parties might want to reduce or expand the warranty service coverage

A warranty may mean increased costs of production to the seller. The increased cost of production means that the seller will have to increase the selling price so that they may reap profit from selling the product. Since the seller has to cover costs of repair or replacement costs of the goods for a specified period, it means that the cost of offering these services for free to their customers for a specified period will have to be covered in the price of the good. The seller will have to pay professionals for the repair of the product and sometimes even give the customer another product altogether. Since the seller is likely to experience losses if the cost of the warranty is not reflected in the price, he increases the price of the good to the consumer so that he can cover the extra costs. A fair price has to be agreed upon so that both the buyer and the seller do not experience losses (Boulding, &Amna, 1993.)

A company may offer an extended warranty if the time for the original warranty has already expired. The buyer in this case is advantaged, but it depends on the company offering the warranty. Some of the issues that a buyer should consider when deciding on an extended warranty include the reputation of the firm offering the warranty and the length of the warranty period. The buyer may also consider the reputation of the seller and the period they have been in the industry. For instance, a buyer is more likely to have an extended warranty period with a firm that has been in the industry for a considerable time and whose reputation has been verified. The seller may consider having an extended warranty to the buyer if they have proven to be trustworthy (Boulding, &Amna, 1993).

References

Boulding, W., &Amna, K. (1993). A consumer-side experimental examination of signaling           theory: do consumers perceive warranties as signals of quality? Journal of Consumer               Research 20(1), 111-123.

Brett, M. (2007).Negotiating Globally: How to Negotiate Deals, Resolve Disputes, and Make        Decisions Across Cultural Boundaries. Hoboken, NJ: John Wiley & Sons.