IDEAS home Printed from https://ideas.repec.org/a/taf/ijecbs/v14y2007i1p1-36.html
   My bibliography  Save this article

The Economic Lessons of Fisher Body-General Motors

Author

Listed:
  • Benjamin Klein

Abstract

The Fisher Body-General Motors case illustrates the costs of using inherently imperfect long-term contracts to solve potential holdup problems, and therefore the advantages of vertical integration. Fisher Body held up General Motors by renegotiating its body supply contract so that, contrary to the original understanding, General Motors made half of the required investments in new body plants. This led to a decline in Fisher Body's capital to sales ratio and, under the unchanged cost-plus contract terms designed to provide Fisher Body with a return on its equity capital investments, produced a substantial wealth transfer from General Motors to Fisher Body. General Motors accepted this unfavourable contract adjustment because it was operating under a long-term exclusive dealing contract that limited its ability to negotiate with Fisher over co-located body plants. The exclusive dealing contract designed to protect Fisher Body's original GM-specific capacity investments against a potential holdup by General Motors thereby created a Fisher Body holdup of General Motors. The way in which Fisher Body accomplished its holdup demonstrates the importance of distinguishing inefficient holdup threats from efficient actual holdups.

Suggested Citation

  • Benjamin Klein, 2007. "The Economic Lessons of Fisher Body-General Motors," International Journal of the Economics of Business, Taylor & Francis Journals, vol. 14(1), pages 1-36.
    • Handle: RePEc:taf:ijecbs:v:14:y:2007:i:1:p:1-36
    DOI: 10.1080/13571510601141112
    as

    Download full text from publisher

    File URL: http://www.tandfonline.com/10.1080/13571510601141112
    Download Restriction: Access to full text is restricted to subscribers.
    File URL: https://libkey.io/10.1080/13571510601141112?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Jean Beuve & Stéphane Saussier, 2012. "Interfirm cooperation in strategic relationships: the role of formal contract," Industrial and Corporate Change, Oxford University Press and the Associazione ICC, vol. 21(4), pages 811-836, August.
    2. Maloney, Michael T., 2017. "Alchian remembrances," Journal of Corporate Finance, Elsevier, vol. 44(C), pages 561-582.
    3. Peter G. Klein, 2010. "Vertical Integration," Chapters, in: Peter G. Klein & Michael E. Sykuta (ed.), The Elgar Companion to Transaction Cost Economics, chapter 17, Edward Elgar Publishing.
    4. Per L. Bylund, 2015. "Signifying Williamson's Contribution to the Transaction Cost Approach: An Agent-Based Simulation of Coasean Transaction Costs and Specialization," Journal of Management Studies, Wiley Blackwell, vol. 52(1), pages 148-174, January.
    5. Andrew M. Davis & Stephen Leider, 2018. "Contracts and Capacity Investment in Supply Chains," Manufacturing & Service Operations Management, INFORMS, vol. 20(3), pages 403-421, July.
    6. Paul Walker, 2010. "The (Non)Theory Of The Knowledge Firm," Scottish Journal of Political Economy, Scottish Economic Society, vol. 57(1), pages 1-32, February.
    7. Johannes Van Biesebroeck & Alexander Schmitt, 2022. "Testing predictions on supplier governance from the global value chains literature [Using hostages to support exchange: dependence balancing and partial equity stakes in Japanese automotive supply ," Industrial and Corporate Change, Oxford University Press and the Associazione ICC, vol. 31(1), pages 89-111.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:taf:ijecbs:v:14:y:2007:i:1:p:1-36. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Chris Longhurst (email available below). General contact details of provider: http://www.tandfonline.com/CIJB20 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.