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Institutional constraints on organizations: the case of Spanish car dealerships

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Author Info
Benito Arruñada (Pompeu Fabra University, Barcelona, Spain)
Luis Vázquez (University of Salamanca, Salamanca, Spain)
Giorgio Zanarone (Pompeu Fabra University, Barcelona, Spain)

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Abstract

We study the effect of organizational choice and institutions on the performance of Spanish car dealerships. Using outlet-level data from 1994, we find that vertically integrated dealerships showed substantially lower labor productivity, higher labor costs and lower profitability than franchised ones. Despite these gaps in performance, no vertically integrated outlet was separated until 1994, yet the few outlets that were eventually separated systematically improved their performance. We argue that the conversion of integrated outlets into franchised ones involved significant transaction costs, due to an institutional environment favoring permanent, highly unionized employment relations. In line with this argument, we find that the observed separations occurred in distribution networks that underwent marked reductions in worker unionization rates, following the legalization of temporary labor contracts. Copyright © 2008 John Wiley & Sons, Ltd.

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File URL: http://hdl.handle.net/10.1002/mde.1429
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Publisher Info
Article provided by John Wiley & Sons, Ltd. in its journal Managerial and Decision Economics.

Volume (Year): 30 (2009)
Issue (Month): 1 ()
Pages: 15-26
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Handle: RePEc:wly:mgtdec:v:30:y:2009:i:1:p:15-26

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Web page: http://www3.interscience.wiley.com/cgi-bin/jhome/7976

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  20. Arrunada, Benito & Garicano, Luis & Vazquez, Luis, 2001. "Contractual Allocation of Decision Rights and Incentives: The Case of Automobile Distribution," Journal of Law, Economics and Organization, Oxford University Press, vol. 17(1), pages 257-84, April.
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