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Creating Holdup through Vertical Integration: Fisher Body Revisited

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  • Freeland, Robert F
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    Abstract

    General Motors's (GM's) 1926 acquisition of Fisher Body has long served as a cornerstone of hold-up arguments for vertical integration. This paper utilizes primary historical evidence to make three related claims. First, it shows that GM's initial investment in Fisher Body occurred primarily to gain access to the Fisher brothers' specialized human assets. Second, it shows that holdup was not the cause of GM's purchase of Fisher Body. Instead, the primary factors leading to vertical integration were GM management's fears over the Fisher brothers' impending departure, coupled with problems of financing new body plants. Finally, I show that while holdup was not an issue prior to integration, the Fisher brothers successfully held up GM after they became employees. Far from reducing opportunistic behavior, vertical integration increased GM's vulnerability to rent-seeking behavior based in human asset specificity. 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: 33-66

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    Handle: RePEc:ucp:jlawec:v:43:y:2000:i:1:p:33-66

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

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    Cited by:
    1. Timothy F. Bresnahan & Jonathan D. Levin, 2012. "Vertical Integration and Market Structure," NBER Working Papers 17889, National Bureau of Economic Research, Inc.
    2. Ola Kvaløy & Trond E. Olsen, 2009. "Endogenous Verifiability and Relational Contracting," American Economic Review, American Economic Association, vol. 99(5), pages 2193-2208, December.
    3. Temin, Peter & Maxwell, James, 2003. "Corporate contracting for health care," Journal of Economic Behavior & Organization, Elsevier, vol. 52(3), pages 403-420, November.
    4. 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.
    5. David de Meza & Marianno Selvaggi, 2003. "Please Hold me Up: Why Firms Grant Exclusive Dealing Contracts," The Centre for Market and Public Organisation 03/066, Department of Economics, University of Bristol, UK.
    6. Frank Mathewson & Ignatius J. Horstmann, 2004. "Coordination, Specialization and Incentives: An Equilibrium Model of Firm Boundaries," Econometric Society 2004 North American Winter Meetings 266, Econometric Society.
    7. 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.
    8. 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.
    9. Steele, Scott R., 2009. "Expanding the solution set: Organizational economics and agri-environmental policy," Ecological Economics, Elsevier, vol. 69(2), pages 398-405, December.
    10. Antonio Nicita & Simone Sepe, 2012. "Incomplete contracts and competition: another look at fisher body/general motors?," European Journal of Law and Economics, Springer, vol. 34(3), pages 495-514, December.
    11. Ugo Pagano, 2009. "Marrying in the Cathedral: a Framework for the Analysis of Corporate Governance," Department of Economics University of Siena 571, Department of Economics, University of Siena.
    12. repec:hal:journl:halshs-00624280 is not listed on IDEAS

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