Asset Specificity and Transaction Structures: A Case Study of @Home Corporation

48 Pages Posted: 3 Mar 2008 Last revised: 13 Nov 2009

Date Written: March 3, 2009


This is a case study of a class of transaction that is well understood in the context of economic theory but that is under-analyzed empirically. Asset specific investments present special contractual challenges. Because specific investments are particular to a single location, use or customer, their next best use is of much lower value than the use for which they are initially proposed. Consequently, asset specific investments face the threat of ex post opportunism leading to a potential allocative inefficiency. This contracting problem is particularly difficult where firms that are otherwise rivals must coordinate individual specific investments in order to create a valuable shared resource. In such cases, generating credible expectations of cooperation among rivals is critical to coordinating these investments. The case of @Home is an example of how rivals were able to employ 'hybrid' structures including contractual safeguards, including joint ownership, specialized governance devices, and economic lock-in, to overcome the problem of asset specificity and then build out a nationwide cable-based online service network during the 1990's. As the market developed alternatives to the @Home service and the technologies and assets of @Home became less specific the economic lock-in required to hold the venture together failed to materialize and @Home collapsed. The ultimate failure of @Home points out that strategies to provide the proper ex ante incentives many not always be durable, leaving contracting parties with less than perfect options.

Keywords: Deals, asset specificity, moral hazard

JEL Classification: K00

Suggested Citation

Quinn, Brian JM, Asset Specificity and Transaction Structures: A Case Study of @Home Corporation (March 3, 2009). Harvard Negotiation Law Review, Forthcoming, Stanford Law and Economics Olin Working Paper No. 354, Available at SSRN:

Brian JM Quinn (Contact Author)

BC Law School ( email )

885 Centre Street
Newton, MA 02459-1163
United States

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