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Creating Holdup through Vertical Integration: Fisher Body Revisited

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  • Freeland, Robert F

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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  • Freeland, Robert F, 2000. "Creating Holdup through Vertical Integration: Fisher Body Revisited," Journal of Law and Economics, University of Chicago Press, vol. 43(1), pages 33-66, April.
  • Handle: RePEc:ucp:jlawec:v:43:y:2000:i:1:p:33-66
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    File URL: http://dx.doi.org/10.1086/467447
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    Cited by:

    1. Per L. Bylund, 2015. "Signifying Williamson's Contribution to the Transaction Cost Approach: An Agent-Based Simulation of Coasean Transaction Costs and Specialization," Journal of Management Studies, Wiley Blackwell, vol. 52(1), pages 148-174, January.
    2. 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.
    3. Ugo Pagano, 2010. "Marrying in the Cathedral: A Framework for the Analysis of Corporate Governance," Chapters,in: The Law and Economics of Corporate Governance, chapter 6 Edward Elgar Publishing.
    4. Paul Walker, 2010. "The (Non)Theory Of The Knowledge Firm," Scottish Journal of Political Economy, Scottish Economic Society, vol. 57(1), pages 1-32, February.
    5. 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.
    6. Gibbons, Robert, 2005. "Four forma(lizable) theories of the firm?," Journal of Economic Behavior & Organization, Elsevier, vol. 58(2), pages 200-245, October.
    7. Wang, T, 2009. "Ownership, Control, and Incentive," Economics Discussion Papers 2955, University of Essex, Department of Economics.
    8. 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.
    9. Ola Kvaløy & Trond E. Olsen, 2009. "Endogenous Verifiability and Relational Contracting," American Economic Review, American Economic Association, vol. 99(5), pages 2193-2208, December.
    10. Timothy Bresnahan & Jonathan Levin, 2012. "Vertical Integration and Market Structure," Introductory Chapters,in: Robert Gibbons & John Roberts (ed.), The Handbook of Organizational Economics Princeton University Press.
    11. Claude Ménard & Jean-Michel Oudot, 2010. "Opportunisme ou équité ? Le cas des contrats d'approvisionnement de défense," Post-Print halshs-00624280, HAL.
    12. 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.
    13. Steele, Scott R., 2009. "Expanding the solution set: Organizational economics and agri-environmental policy," Ecological Economics, Elsevier, vol. 69(2), pages 398-405, December.
    14. 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.
    15. Temin, Peter & Maxwell, James, 2003. "Corporate contracting for health care," Journal of Economic Behavior & Organization, Elsevier, vol. 52(3), pages 403-420, November.
    16. 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.
    17. 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.
    18. 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.
    19. Coase, R H, 2000. "The Acquisition of Fisher Body by General Motors," Journal of Law and Economics, University of Chicago Press, vol. 43(1), pages 15-31, April.

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