solution

An international coffee cartel has just announced a drastic increase in the price of coffee. An Australian coffee distributor believes that its market share will decrease with any significant price increase since consumers will switch to drinking more tea instead of coffee. Papua New Guinea is a major coffee producer who is not a member of the cartel, but the controlling coffee exporter requires coffee to be processed in Papua New Guinea before export rather than simply exporting the beans for foreign processing. The Australian distributor doesn’t mind sharing its production expertise with the Papua New Guinea firm in exchange for trade concessions. Discuss whether the Australian firm would be better to enter into a (i) joint venture or (ii) contract manufacturing arrangement with the Papua New Guinea firm.