Almost every year at harvest time in upstate New York there are serious conflicts between Duffy-Mott processing plant and the Apple Growers Association[1]. The Association charges Duffy-Mott with exploitation and devious behavior in setting exceedingly low prices at which it will buy apples from local growers. Duffy-Mott contends the farmers are unrealistic and ill-informed about conditions in the apple market that influence the price it can pay for purchase of apples. Duffy-Mott complains that individual growers sometimes sell many of their apples in the fresh produce market and not to them as promised while arguing that low yields or other factors prohibited the fulfillment of short term supply agreements. Furthermore, the Apple Growers Association has begun to organize its members to withhold apples to increase their bargaining power.

Duffy-Mott is the sole surviving apple processor in an area that previously supported several processing plants. The Duffy-Mott plant is highly specialized and therefore has little value in other uses.
In recent years growers have attempted to develop alternative outlets for their apples, including the fresh apple market and markets in Canada and neighboring states such as Pennsylvania. Transportation and other costs of reaching these markets are so high that these alternatives have not substantially resolved the growers’ problems.

1. What general organizational problem is illustrated by this conflict?

2. Suggest an alternative organizational structure that will reduce the conflict and make everyone better off. Explain why.

[1] This case was prepared by Professors George P. Baker, Michael C. Jensen and Karen H. Wruck. Source: Michael C. Jensen and Karen H. Wruck, “Coordination, Control, and the Management of Organizations: Course Content and Materials,” Harvard Business School Manuscript, April 20, 1998, available in electronic form from Social Science Research Network Electronic Library at: http://papers.ssrn.com/sol3/paper.taf?ABSTRACT-ID=77969.


1. Asset specificity

2. Vertical integration

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