Final answer:
The holdup problem is a common issue in relationship-specific investment, where one party can exploit the dependency created by specific investments made by the other party.
Step-by-step explanation:
The holdup problem is a common issue for relationship-specific investment.
The holdup problem refers to the situation where one party in a relationship has made specific investments that are valuable only in the context of that relationship, and the other party has the power to exploit this dependency by demanding unfavorable terms or breaking the relationship altogether. This problem often arises in business partnerships where one partner has invested heavily in specific assets or resources that are crucial for the success of the partnership.
For example, imagine two companies that enter into a long-term contract where Company A invests significant resources into developing a new technology that will benefit both parties. However, Company B realizes that it can demand more favorable terms or even terminate the contract, leaving Company A with sunk costs and potential losses.
In summary, the holdup problem is indeed a common issue for relationship-specific investment.