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Fisher-General Motors and the Nature of the Firm


  • Klein, Benjamin


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.

Suggested Citation

  • Klein, Benjamin, 2000. "Fisher-General Motors and the Nature of the Firm," Journal of Law and Economics, University of Chicago Press, vol. 43(1), pages 105-141, April.
  • Handle: RePEc:ucp:jlawec:v:43:y:2000:i:1:p:105-41

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    References listed on IDEAS

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    Cited by:

    1. 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.
    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. Michael Dietrich & Jackie Krafft, 2011. "Firm development as an integrated process: with evidence from the General Motors–Fisher Body case," Journal of Evolutionary Economics, Springer, vol. 21(4), pages 665-686, October.
    4. Escobar, Octavio R. & Le Chaffotec, Alexandra, 2015. "The influence of OPEC membership on economic development: A transaction cost comparative approach," Research in International Business and Finance, Elsevier, vol. 33(C), pages 304-318.
    5. Thiele, Veikko, 2007. "The Demand for Tailored Goods and the Theory of the Firm," MPRA Paper 2471, University Library of Munich, Germany.
    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. Michael E. Sykuta, 2010. "Ronald H. Coase," Chapters,in: The Elgar Companion to Transaction Cost Economics, chapter 4 Edward Elgar Publishing.
    8. Raphael Boleslavsky & Christopher Hennessy & David L. Kelly, 2017. "Markets vs. Mechanisms," Working Papers 2017-11, University of Miami, Department of Economics.
    9. Storchevoy, Maxim A., 2010. "A general theory of the firm: From Knight to relationship marketing," Working Papers 765, Graduate School of Management, St. Petersburg State University.
    10. repec:eee:eneeco:v:67:y:2017:i:c:p:355-365 is not listed on IDEAS
    11. Buldyrev, Sergey V. & Salinger, Michael A. & Stanley, H. Eugene, 2016. "A statistical physics implementation of Coase׳s theory of the firm," Research in Economics, Elsevier, vol. 70(4), pages 536-557.
    12. Gibbons, Robert, 2005. "Four forma(lizable) theories of the firm?," Journal of Economic Behavior & Organization, Elsevier, vol. 58(2), pages 200-245, October.
    13. 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.
    14. Andreas Roider, 2004. "Asset Ownership and Contractibility of Interaction," RAND Journal of Economics, The RAND Corporation, vol. 35(4), pages 787-802, Winter.
    15. 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.
    16. repec:bla:stratm:v:38:y:2017:i:5:p:1134-1150 is not listed on IDEAS
    17. Karine Fabre & Gwenaëlle Nogatchewsky & Anne Pezet, 2010. "Contribution à une histoire de l’externalisation:le cas Renault (1945-1975)," Revue Finance Contrôle Stratégie,, vol. 13(2), pages 145-188., June.
    18. repec:eee:corfin:v:44:y:2017:i:c:p:561-582 is not listed on IDEAS
    19. Peter G. Klein, 2010. "Vertical Integration," Chapters,in: The Elgar Companion to Transaction Cost Economics, chapter 17 Edward Elgar Publishing.
    20. Harada, Tsutomu, 2015. "Structural change and economic growth with relation-specific investment," Structural Change and Economic Dynamics, Elsevier, vol. 32(C), pages 1-10.
    21. 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.
    22. 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.
    23. 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).
    24. repec:eee:transe:v:106:y:2017:i:c:p:255-275 is not listed on IDEAS
    25. Joshua D. Wright, 2010. "The Chicago School, Transaction Cost Economics, and Antitrust," Chapters,in: The Elgar Companion to Transaction Cost Economics, chapter 23 Edward Elgar Publishing.

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