Institutional Constraints on Organizations: The Case of Spanish Car Dealerships

Managerial and Decision Economics, 2009, 30(1), 15-26

24 Pages Posted: 10 Sep 2007 Last revised: 22 Jul 2018

See all articles by Benito Arruñada

Benito Arruñada

Pompeu Fabra University - Department of Economics and Business; Barcelona GSE

Luis Vázquez

Universidad de Salamanca

Giorgio Zanarone

CUNEF

Date Written: 2009

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

Keywords: vertical integration, ownership, distribution, networks, franchising

JEL Classification: D23, L14, L22, L81

Suggested Citation

Arruñada, Benito and Vázquez, Luis and Zanarone, Giorgio, Institutional Constraints on Organizations: The Case of Spanish Car Dealerships (2009). Managerial and Decision Economics, 2009, 30(1), 15-26. Available at SSRN: https://ssrn.com/abstract=1013093

Benito Arruñada (Contact Author)

Pompeu Fabra University - Department of Economics and Business ( email )

Ramon Trias Fargas 25-27
Department of Economics and Business
Barcelona, 08005
Spain
+34 93 542 25 72 (Phone)
+34 93 542 17 46 (Fax)

HOME PAGE: http://www.econ.upf.edu/~arrunada

Barcelona GSE ( email )

Ramon Trias Fargas, 25-27
Barcelona, Barcelona 08005
Spain

Luis Vázquez

Universidad de Salamanca ( email )

Campus Miguel de Unamuno
37008 Salamanca, Salamanca 23007
Spain
+34 923 294 640 Ext. 3174 (Phone)
+34 923 294 715 (Fax)

Giorgio Zanarone

CUNEF ( email )

Leonardo Prieto Castro 2
Madrid, Madrid 28040
Spain

HOME PAGE: http://gzanarone.cunef.edu

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