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Institutional constraints on organizations: The case of Spanish car dealerships

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  • Benito Arruñada

    ()

  • Luis Vázquez
  • Giorgio Zanarone

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 verticallyintegrated dealerships showed substantially lower labor productivity, higher labor costs and lower profitability than franchised ones. Despite these gaps in performance, no verticallyintegrated 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.

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Bibliographic Info

Paper provided by Department of Economics and Business, Universitat Pompeu Fabra in its series Economics Working Papers with number 348.

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Date of creation: Jan 1999
Date of revision: Jun 2007
Handle: RePEc:upf:upfgen:348

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Web page: http://www.econ.upf.edu/

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Keywords: Vertical integration; ownership; distribution; networks; franchising;

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Cited by:
  1. Francine Lafontaine & Fiona Scott Morton, 2010. "Markets: State Franchise Laws, Dealer Terminations, and the Auto Crisis," Journal of Economic Perspectives, American Economic Association, vol. 24(3), pages 233-50, Summer.
  2. Muriel Fadairo & Cintya Lanchimba, 2012. "Performance in distribution systems : What is the influence of the upstream firm's organizational choices ?," Working Papers halshs-00727382, HAL.
  3. Muriel Fadairo & Cintya Lanchimba Lopez, 2012. "Performance in distribution systems : What is the influence of the upstream firm’s organizational choices ?," Working Papers 1224, Groupe d'Analyse et de Théorie Economique (GATE), Centre national de la recherche scientifique (CNRS), Université Lyon 2, Ecole Normale Supérieure.

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