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Fisher-General Motors and the Nature of the Firm

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  • Klein, Benjamin

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 profit 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 side payment from GM to Fisher, was the way in which this contractual hold-up problem was solved. This examination of the Fisher-GM case illustrates the role of vertical integration in avoiding the rigidity costs of long-term contracts. Copyright 2000 by the University of Chicago.

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Bibliographic Info

Article provided by University of Chicago Press in its journal Journal of Law & Economics.

Volume (Year): 43 (2000)
Issue (Month): 1 (April)
Pages: 105-41

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Handle: RePEc:ucp:jlawec:v:43:y:2000:i:1:p:105-41

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Web page: http://www.journals.uchicago.edu/JLE/

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Cited by:
  1. Andreas Roider, 2004. "Asset Ownership and Contractibility of Interaction," RAND Journal of Economics, The RAND Corporation, vol. 35(4), pages 787-802, Winter.
  2. Schmid, Andreas, 2007. "Incentive Compatibility and Efficiency in the contractual Insurer-Provider Relationship: Economic Theory and practical Implications: The Case of North Carolina," MPRA Paper 23311, University Library of Munich, Germany, revised 2008.
  3. Andreas Roider, 2006. "Fisher Body revisited: Supply contracts and vertical integration," European Journal of Law and Economics, Springer, vol. 22(2), pages 181-196, September.
  4. Thiele, Veikko, 2007. "The Demand for Tailored Goods and the Theory of the Firm," MPRA Paper 2471, University Library of Munich, Germany.
  5. Kvaløy, Ola & Olsen, Trond E., 2004. "Endogenous Verifiability in Relational Contracting," Discussion Papers 2004/20, Department of Business and Management Science, Norwegian School of Economics.
  6. Michael Dietrich & Jackie Krafft, 2008. "À la recherche d'une théorie de la firme pertinente historiquement. Retour sur le cas d'intégration verticale General Motors/ Fisher Body (1926)," Innovations, De Boeck Université, vol. 0(1), pages 87-99.
  7. Robert S. Gibbons, 2003. "How organizations behave: towards implications for economics and economic policy," Conference Series ; [Proceedings], Federal Reserve Bank of Boston, vol. 48(Jun).
  8. Karine Fabre & Gwenaëlle Nogatchewsky & Anne Pezet, 2010. "Contribution à une histoire de l’externalisation:le cas Renault (1945-1975)," Revue Finance Contrôle Stratégie, revues.org, vol. 13(2), pages 145-188., June.
  9. Olivier Sautel & Cécile Cézanne-Sintès, 2007. "Firme intensive en capital humain et coordination : vers une redéfinition du rapport entre intégration et dé-intégration," Post-Print hal-00331454, HAL.
  10. Heugens, P.P.M.A.R. & Kaptein, S.P. & van Oosterhout, J., 2007. "Contracts to Communities: A Processual Model of Organizational Virtue," ERIM Report Series Research in Management ERS-2007-023-ORG, Erasmus Research Institute of Management (ERIM), ERIM is the joint research institute of the Rotterdam School of Management, Erasmus University and the Erasmus School of Economics (ESE) at Erasmus University Rotterdam.
  11. Michael Dietrich & Jackie Krafft, 2011. "Firm development as an integrated process: with evidence from the General Motors - Fisher Body case," Post-Print hal-00538414, HAL.
  12. Hui, Kai Wai & Klasa, Sandy & Yeung, P. Eric, 2012. "Corporate suppliers and customers and accounting conservatism," Journal of Accounting and Economics, Elsevier, vol. 53(1), pages 115-135.

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