Download this Paper Open PDF in Browser

Fisher-General Motors and the Nature of the Firm

38 Pages Posted: 9 Jul 2011  

Benjamin Klein

University of California, Los Angeles (UCLA) - Department of Economics; Compass Lexecon

Multiple version iconThere are 2 versions of this paper

Date Written: 2000

Abstract

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.

JEL Classification: L14, K12

Suggested Citation

Klein, Benjamin, Fisher-General Motors and the Nature of the Firm (2000). Journal of Law and Economics, Vol. 43, No. 1, pp. 105-141, April 2000. Available at SSRN: https://ssrn.com/abstract=1658206

Benjamin Klein (Contact Author)

University of California, Los Angeles (UCLA) - Department of Economics ( email )

1999 Avenue of the Stars
Suite 1150
Los Angeles, CA 90067-4628
United States
310-728-2025 (Phone)
310-728-2070 (Fax)

HOME PAGE: http://www.econ.ucla.edu/people/Faculty/Klein.html

Compass Lexecon ( email )

1999 Avenue of the Stars
Suite 1150
Los Angeles, CA 90067-4628
United States
310-728-2025 (Phone)
310-728-2070 (Fax)

HOME PAGE: http://www.compasslexecon.com/professionals/bio?id=152

Paper statistics

Downloads
178
Rank
141,938
Abstract Views
960