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The Fable of Fisher Body, Journal of Law and Economics

Abstract

General Motors's (GM's) acquisition of Fisher Body is the classic example of market failure in the literature on contracts and the theory of the firm. According to the standard account, in 1926 GM merged vertically with Fisher Body, a maker of auto bodies, because of concerns over transaction-specific investment and contractual holdup. That account exhibits errors of historical fact and interpretation. General Motors acquired a 60 percent interest in Fisher Body in 1919. Moreover, the contractual arrangements and working relationship prior to the 1926 merger exhibited trust rather than opportunism. Fisher Body's production technology did not exhibit asset specificity. The merger reflected economic considerations specific to that time, not some immutable market failure. We demonstrate that vertical integration was directed at improving coordination of production and inventories, assuring GM of adequate supplies of auto bodies, and providing GM with access to the executive talents of the Fisher brothers. Citation Copyright 2000 by the University of Chicago.

Type

Article

Author(s)

Ramon Casadesus-Masanell, Daniel Spulber

Date Published

2000

Citations

Casadesus-Masanell, Ramon, and Daniel Spulber. 2000. The Fable of Fisher Body. Journal of Law and Economics. 43(1): 67-104.

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