Fisher Body revisited: Supply contracts and vertical integration

Author: Roider, Andreas

Source: European Journal of Law and Economics, Volume 22, Number 2, September 2006 , pp. 181-196(16)

Publisher: Springer

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Abstract:

The vertical integration of Fisher Body by General Motors has been a leading example in both the transaction-cost theory and the property-rights theory of the firm. The present paper makes the following contributions. First, we show how a simple extension of the property-rights theory of the firm (which allows for contractible trade) is able to rationalize the observed ownership arrangements, supply contracts, and investment behavior both before and after integration. Second, the model lends support to Klein's (2000) view that an increase in demand for closed automobile bodies was pivotal for vertical integration.

Keywords: Vertical integration; Supply contracts; Hold-up; Property rights; Boundaries of the firm

Document Type: Research article

DOI: http://dx.doi.org/10.1007/s10657-006-0310-7

Affiliations: 1: Email: roider@uni-bonn.de

Publication date: 2006-09-01