Essay about Hold Up Problem - 19245 Words

FISHER–GENERAL MOTORS AND THE NATURE OF THE FIRM* BENJAMIN KLEIN University of California, Los Angeles Abstract After working well for more than 5 years, the Fisher Body–General Motors (GM) contract for the supply of automobile bodies broke down when GM’s demand for Fisher’s bodies unexpectedly increased dramatically. This pushed the imperfect contractual arrangement between the parties outside the self-enforcing range and led Fisher to take advantage of the fact that GM was contractually obligated to purchase bodies on a cost-plus basis. Fisher increased its short-term proï ¬ t by failing to make the investments required by GM in a plant located near GM production facilities in Flint, Michigan. Vertical integration, with an associated†¦show more content†¦Fisher then refused to make the necessary capital investments required to produce bodies efï ¬ ciently for GM, in particular refusing to build an important body plant close to a GM production facility in Flint, Michigan. These contractual difï ¬ culties were the primary reason GM decided in 1926 to vertica lly integrate with Fisher Body. The marked change in Fisher’s behavior between the early 1919–24 period and the later 1925–26 period provides important insights into the basic economic forces at work in contractual arrangements. Similar to a biologist 3 Surveys of these studies are provided in Paul L. Joskow, Asset Speciï ¬ city and the Structure of Vertical Relationships: Empirical Evidence, 4 J. L. Econ. Org. 95 (1988); Howard A. Shelanski Peter G. Klein, Empirical Research in Transaction Cost Economics: A Review and Assessment, 7 J. L. Econ. Org. 335 (1995); and Keith J. Crocker Scott F. Masten, Regulation and Administered Contracts Revisited: Lessons from Transaction-Cost Economics for Public Utility Regulation, 9 J. Reg. Econ. 5 (1996). 4 R. H. Coase, The Acquisition of Fisher Body by General Motors, in this issue, at 15. 5 Robert F. Freeland, Creating Holdup through Vertical Integration: Fisher Body Revisited, in this issue, at 33. 6 Ramon Casadesus-Masanell Daniel F. Spulber, The Fable of Fisher Body, in this issue, at 67. fisher-gm and the nature of the firmShow MoreRelatedPolice Brutality? Essay810 Words   |  4 Pagestechniques when trying to subdue combative suspects. Since incidents like the Rodney King beating, people have started paying more attention to how the police handle suspects. Questions concerning the deaths of people after a tazor was used or the choke hold had been applied have been raised recently. The use of tazor guns, which were first introduced in the 1970s and put out a jolt of 50,000 volts, has been questioned recently by groups like Amnesty International who claim that police using the tazorsRead MorePragmatics : The Area Of Linguistics Essay1670 Words   |  7 Pageslanguage is deemed appropriate. 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