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Institutional Constraints on Organizations: The Case of Spanish Car Dealerships

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Author Info
Benito Arruñada ()
Luis Vázquez
Giorgio Zanarone

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Abstract

We show that organizational choice in a sample of Spanish car distributors has been subject to institutional constraints causing substantial underperformance. Even though the original choice between franchising and vertical integration was seemingly aimed to contain moral hazard for both distributors and manufacturers, it has been subject to start-up constraints and switching costs. While the market for franchises remained underdeveloped, information asymmetries led to the opening of integrated outlets. Their subsequent conversion into franchised outlets probably involved prohibitive transaction costs. Consequently, they performed worse than would have been expected had they been independent, as confirmed by the systematic improvement observed when they were in fact converted. The timing of such conversios suggests that switching costs were prohibitive until firms developed a substantial cushion of temporary contracts, previously forbidden by regulation.

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Publisher 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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Related research
Keywords: Vertical integration; ownership; distribution; networks; franchising;

Other versions of this item:

Find related papers by JEL classification:
D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights
L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation
L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure
L81 - Industrial Organization - - Industry Studies: Services - - - Retail and Wholesale Trade; e-Commerce

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